Stock incentives are becoming a popular point of attraction for employees who work for companies. Offering them a percentage of ownership in your company is one of the best ways to motivate employees. Creating a stock incentive plan for your company may seem a bit daunting, but if you follow these easy steps, you’ll make a good plan that benefits both the company and the employees.
Setting up the plan
You need to deal with the following as part of your preparations to set up your stock incentive plan.
Identify your company philosophy
Your stock incentive plan should reflect your company’s corporate philosophy. Hammer this out with your board of directors and your advisors.
Based on how you see the company, how much of the company are you willing to share with your employees? What is your incentive for the people who have joined you in its infancy? How will you reward future employees? How much are you willing to give in terms of cash or equity? You and your core team of senior management should be able to answer these questions.
Put it in writing
When you’ve hammered out all the details, it’s time to put it on paper and present it to your board and, if there are any, stockholders for approval.
Put it in motion
Now that you’ve gotten approval. It’s time to make it official by doing the paperwork. Get all of the necessary permits for your stock incentive plan. Each state will have different stock option regulations, so make sure you’re complying with the right regulations.
Overseeing the plan
After you’ve set up the plan and concretized it, you’ll need to monitor and maintain your plan.
Keep up to date with your 409A valuation
You need to keep up with your 409A valuation. This valuation will help set the exercise price for your stocks so that it complies with IRS guidelines. You should initiate a new process if your valuation is older than a year or if your company has made any notable finance-, sales-, or product-related achievements.
Set the budget
You should have a hiring plan in place that will run until your next round of funding. Part of the plan should include allocating the stock options earmarked for new employees as part of their compensation package.
Set and monitor your stock options pool
Based on your board of directors’ / stockholders’ approval, you can devise a stock option pool that reflects your budget and plan. This should then be monitored to ensure that it will be adequate over time as you get more employees.
Running the plan
With a stock incentive plan in place, it’s time to implement it and ensure that everything is run smoothly.
Mind the paperwork
Always make sure that all permits and documents are up to date. Always remember to make sure your 409A valuation is being diligently updated. Remember that you still have to update it after a year or after a milestone. Updated plan also needs to be presented to the board for approval
Stock incentive plans benefit everyone
Creating a stock incentive plan may involve a lot of coordination, paperwork, and approvals. But in the end, devising one for your company is an excellent investment and a primary driver that will help your company achieve success.
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