Equity compensation is complex topic. This questionnaire is designed to help privately-held companies determine if equity compensation is a good path for their success. It also helps companies determine the type of equity (or synthetic equity) that may work best to help them achieve their goals.

1. Rolling
out
an
equity
compensa2on
plan
requires
an
understanding
of
SEC,
tax
and
accoun2ng
rules
in
conjunc2on
with
human
capital
and
engagement
prac2ces.
It
is
a
complex
process
that
should
be
evaluated
carefully
before
deciding
to
go
at
it
alone.
Considera2ons
for
these
plans
include:
1. Percent
of
company
value
to
dedicate
to
equity
compensa5on.
The
amount
of
ownership
that
you
are
willing
to
dedicate
to
employee
equity.
2. Exit
/
Liquidity
event.
These
are
poten2al
mone2za2on
events
that
will
allow
employees
to
extract
money
from
their
equity.
Among
these
are:
IPO,
acquisi2on,
merger,
purchase,
secondary
market
and
the
internal
(company-­‐controlled)
market.
3. Laws
for
issuance
and
taxes.
Considera2on
of
the
states
and
countries
where
your
employees
reside.
Many
states
and
nearly
all
countries
have
their
own
securi2es
rules.
There
are
also
tax
and
accoun2ng
rules
to
consider.
4. Impact
on
dilu5on.
Equity
compensa2on
must
account
for
dilu2on
of
shareholders
and/or
the
value
of
your
company.
5. Company
valua5on.
There
must
a
be
a
process
for
valuing
your
company
and
its
underlying
stock.
This
is
required
under
IRC
409A
and
oUen
requires
an
outside
valua2on
professional.
6. Policies.
Termina2on
(voluntary
or
not),
change
in
control,
re2rement
and
leaves
of
absence.
7. Ownership.
When
should
you
allow
for
employees
to
become
actual
owners
of
stock
and
how
will
that
ownership
impact
your
company?
For
example,
>499
shareholders
in
a
C-­‐Corp
generally
results
in
required
SEC
filings,
or
significant
legal
work
to
a]empt
an
exemp2on.
Each
new
shareholder
means
one
more
person
with
vo2ng
privileges
and
a
poten2al
addi2onal
mee2ng
a]endee.
Shareholders
have
far
more
rights
than
holders
of
unexercised
op2ons.
8. Equity
instruments
to
be
used.
Stock
op2ons
are
good,
but
not
always
right
for
every
company.
There
are
many
reasons
to
consider
Restricted
Stock
Shares
and
Units,
Stock
Apprecia2on
Rights,
Phantom
Stock,
Performance
Units
and
more.
9. Ves5ng
schedule
and
exercisability.
Historical
ves2ng
periods
are
4-­‐5
years
for
stock
op2ons
and
2-­‐4
years
for
restricted
stock
shares
or
units.
The
correct
ves2ng
schedules
for
your
company
may
not
be
as
simple
as
this
and
may
have
more
than
one
standard
schedule.
Awards
may
also
allow
for
more
frequent
ves2ng
once
the
employee
reaches
a
specific
2me
threshold
(generally
one
year).
10. Informa5on
sharing.
How
much
are
you
willing
to
share
with
employees
and
how
will
they
perceive
value
in
their
equity
compensa2on
given
the
amount
of
informa2on
provided?
11. Grant
size.
How
much
should
each
individual
be
granted?
How
much
of
the
company
are
you
willing
to
give
one
individual?
How
much
are
you
willing
to
give
right
now?
What
expecta2ons
does
that
set
for
the
future?
How
frequently
will
you
grant
op2ons?
Like
many
things
in
life,
equity
compensa2on
is
easy
to
do
wrong
and
hard
to
do
right.
Equity
compensa2on
should
not
be
a
“do-­‐it-­‐yourself”
project.
©2016
Performensa2on
Toll
free
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Direct
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email:
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TOP 11 CONSIDERATIONS FOR EQUITY COMPENSATION
P R I V A T E C O M P A N Y C O M P E N S A T I O N
Philosophy and Design | Legal and Compliance | Accounting and Taxation | Communication and Implementation