How to design an equity incentive plan for private enterprises

Facaida has done a good job in the field of equity incentive and equity design, and has studied the equity issues of various types of enterprises, has rich practical experience, and has many successful cases. Rest assured for life. If you don't understand, you can also find out.

The equity incentive plan refers to the form of allowing employees to obtain the company's equity through the enterprise.

This method can enable them to enjoy certain economic rights, so that they can participate in corporate decision-making, share profits and bear risks as shareholders, so that they can serve the long-term development of the company wholeheartedly, and is a relatively long-term core institutional arrangement necessary for the development of the company.

The equity incentive plan should include share allocation, shares and funds**, incentive purpose, incentive model, incentive object and assessment, share management, etc., which are inconsistent among each company. The equity incentive system is a long-term incentive mechanism implemented by enterprises in order to attract, motivate and retain core talents. The enterprise conditionally gives part or all of the shareholders' rights and interests to the incentive object, so that it can form a community of interests with the enterprise, so as to achieve the long-term development goals of the enterprise.

Institutional advantages

1. Attract, motivate and retain talents.

2. Bind the interests of bosses and employees, integrate upstream and downstream, share risks, share benefits, and develop together.

3. Solve the potential problems caused by the entrustment relationship between shareholders and executives.

4. Let the company's development goals become the personal development goals of employees, and promote the development of the enterprise at full speed.

5. For some start-up companies, the early cash flow pressure is greater, and employees are given the expectation of future earnings through equity incentives, so as to reduce the expenditure of cash flow.

6. It should be noted that when carrying out equity incentives, the founders need to sell equity at the expense, and if the proportion is not properly arranged, the control will be threatened.

Equity incentive option incentive is a common means for enterprises to attract talents and enhance the enthusiasm of employees, but the implementation operation is not simple. The design and implementation of the plan need to be combined with the company's corporate culture, main business content, organizational structure, equity structure, company development and other contents of the overall planning, scientific calculation, and careful arrangement to ensure that the equity incentive can be dynamically adjusted according to the company's development.

The following issues need to be considered in the design of an enterprise's equity incentive plan:

Purpose and person: Who should give options? Who should not give options?

Fixed shares: I want to poach an executive and promise to give him options, but he wants restricted equity, what's the difference between the two?

Timing: When is the right time to do option incentives?

Quantitative: How much equity percentage of the option pool do I want to set aside for my employees? Is there an industry standard for issuing options for different positions?

Pricing: How to agree on the exercise**?

Rules: How long does it take for newly recruited executives to be granted options?

Change: What should I do if the equity incentive is too much and the employee's performance does not meet expectations?

Mechanism: What should I do if an employee who gets equity wants to leave?

Equity incentive plan refers to an incentive method in which employees can enjoy certain economic rights in the form of obtaining the company's equity, so that they can participate in corporate decision-making, share profits and bear risks as shareholders, so that they can serve the long-term development of the company wholeheartedly, and is a relatively long-term core institutional arrangement necessary for the development of the company.

It is right to consult Fa Caida on issues such as equity incentive design, and they have done a good job in this area Equity lawyers and professional accountants serve together.

The four key aspects of equity incentive include: scheme design, trust & tax planning, data management, and exercise of rights.

The scheme design is the core of the whole right incentive plan, which is generally arranged by a professional equity incentive plan design company. In the scheme design process, everyone generally focuses on when to start, how big the option pool is, and which employees to give to.

For business founders and executives, going public will bring a huge fortune, and most will use trusts as a tool to protect family assets. At the employee level, collective trusts can also be used to manage the equity of incentives in a unified manner, and the application scope of trusts has gradually expanded, which is a non-negligible part of equity incentives.

Equity incentive is a long-term span of things that accompany the establishment of enterprises to listing, which involves a large number of personnel, many scenarios, and different incentive tools, the amount of data generated is also very huge, if the enterprise uses excel to process data, not only low security, easy to cause data loss, data theft and other problems, maintenance of labor costs are large and low efficiency, it is generally recommended that enterprises use the system to unified management.

The exercise of rights is actually the most complex and cumbersome part of the whole rights incentive process, because the equity incentive involves a lot of employees, but for employees, there is actually no clear understanding, and they do not have enough understanding of the rights, transactions, pledges, lifting the ban and so on. In this context, if employees begin to exercise their rights, it will produce a very huge consulting work for human resources, financial and other personnel, and it is time-consuming and laborious to solve purely manual solutions.

This is the professional field of Facaida, the design of the equity structure of the company, and the equity incentive of the employee are done by them, not a training institution, they have a special equity lawyer and certified public accountant, and they directly implement the kind. If you want to know more about it, you may wish to know it in a unified way.

The equity incentive plan of small companies mainly includes market selection mechanism incentives, market evaluation mechanism incentives, control and restraint mechanism incentives, comprehensive incentive mechanism incentives and policy environment incentives.

1. Market selection mechanism incentives, sufficient market selection mechanism can ensure the quality of managers, and have a long-term restraining and guiding effect on managers' sales. It is difficult for managers identified by administrative appointments or other non-market options to align with the long-term interests of shareholders and to make incentive and restraint mechanisms work.

2. The market evaluation mechanism is incentive, and it is difficult to make a reasonable evaluation of the company's value and the performance of managers without objective and effective market evaluation. In the case of excessive market manipulation, excessive intervention and social audit system can not ensure objectivity and fairness, the capital market is inefficient, it is difficult to determine the long-term value of the company through the stock price, and it is difficult to evaluate and motivate managers through equity incentives.

3. Incentive of control and restraint mechanism, which is a restriction on the behavior of managers, including laws, regulations and policies, company regulations, and company control management system. A good control and restraint mechanism can prevent managers from detrimental to the company's behavior, and ensure the healthy development of the company.

4. Comprehensive incentive mechanism incentive, comprehensive incentive mechanism is to guide the behavior of managers through comprehensive means, including salary, bonus, equity incentive, promotion, training, welfare, good working environment, etc.

5. Policy environment incentives, the first obligation to provide policy support for the formation and strengthening of various mechanisms through laws and regulations, management systems and other forms, to create a good policy environment, inappropriate policies will hinder the role of various mechanisms.

Notes:

1. The shareholders and management of the company often overlap, so it is rarely necessary to consider the equity distribution between shareholders and management, and only need to consider the equity distribution between shareholders. Three factors need to be considered when determining equity allocation: the contribution of shareholders at the resource level, the control of shareholders at the corporate governance level, and the company's future financing space.

2. One of the important bases of the company's equity incentive plan is the capital contribution of each shareholder, but this is not the only basis. A company's equity incentive plan is often not consistent with the proportion of capital contribution. Some start-up companies will adopt the form of yin-yang agreement, that is, on the one hand, by signing relevant agreements to clarify the equity of each shareholder that is not consistent with the proportion of capital contribution, and on the other hand, according to the proportion of capital contribution to complete the industrial and commercial registration, but the legal risk of this behavior is very large, and the company will be involved in litigation in the future, and it will be difficult for the rights and interests of shareholders to be legally protected.