An incentive plan can be one way to help protect your emerging business from the loss of employees at a crucial time of business growth.
Employee Incentive
Providing employees with a way to earn a stake in the company and benefit from profits gives them a powerful reason to stick with you during capital-raising efforts and other important milestones. It also helps them think of their work in the longer term: As they help the business succeed, they are helping their personal bottom line.
Andy Rachleff, president and CEO of a financial advisor company, wrote that incentivizing employees with ownership in the company through stock options, for example, can: “Align the risk and reward of employees betting on an unproven company; Reward long-term value creation and thinking by employees; Encourage employees to think about the company’s holistic success.”
Forbes quoted former PayPal executive Bill Harris as saying, “The people you want to attract to your business are the people who want equity,” he says. “You need people who are willing to take risks. And then you need to reward them.”
Protection
As you think about crafting your company’s employee incentive plan, you must also take into account protecting your own investment. To do so, a good plan will include a vesting schedule that prevents new employees from retaining their stock if they leave before the vesting term.
In addition, a “lock-up agreement” will prevent shareholders from selling their stock for a predetermined amount of time following an IPO, and that can help keep the stock price stable during that important initial offering.
To learn more about drafting the legal agreements associated with your employee incentive program, contact EmergeCounsel today.