Written by Kristian Piippo
Have you thought about implementing an equity program for your company but are unsure where to start and what to think about? Don’t worry!
In this article we will unpack key elements you need to consider before rolling out an employee equity program. Although each company and their situation are unique, there are a few general considerations which every program owner (whether CEO, CFO, HR or other) should think about in the idea phase of launching a program.
The goal with the program
An equity program for employees can have different purposes or be skewed towards one objective. Some of the reasons why companies implement equity programs is as a tool for recruiting and retaining talent, lowering cash cost in exchange for equity compensation, rewarding talent for extraordinary efforts, including employees in the value creation, creating a common culture, and much more.
Should you use options, RSUs or maybe let your employees purchase shares? Variations of options (like VSOPs or ESOPs) are popular among startups but might not be the right fit for your company. Your choice of instrument should largely be dictated by your goals with the program.
Tax consequences for your employees
An extremely important factor to consider before going live with your program is to consider the tax consequences for your employees. This is to make sure the program does not become a dis-incentive, which can be the case with (for example) dry income.
Costs for the company
Costs for the company come in the form of dilution (either immediate or in the future), and potentially also social security costs, and non-cash salary costs. You should be aware of these consequences and costs that might arise in the future.
Size of the program and individual awards
Too many companies launch an equity program without carefully considering the long-term effects for both company and the employees. Are your award sizes appropriate given your company’s current situation, and future plans? Have you considered the potential outcomes for an employee who receives X % of the company in options or shares?
As you see, there are plenty of factors to consider before launching your equity program, but this should not hold you back from providing equity opportunities to your current and future employees.
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Disclaimer: This article is for educational purposes only, and the considerations listed below are not exhaustive. Each company’s situation is different and should be evaluated on a case-by-case basis by experts.