Stock incentive plans may be a useful tool to motivate and reward employees for their hard work. A stock incentive plan may be particularly useful for startups and small companies, giving employees a sense of ownership and equity. This sense of ownership and equity is likely to incentivize employees to do quality work and stay with the company so they can benefit from all future growth of the company. Another important benefit of implementing a stock incentive plan may be delegating ownership out of one or a few shareholders hands to plan for the long-term prosperity of the company.

There are different types of stock incentive plans that each uses a distinct system to compensate the employee with shares. One type of stock incentive plan uses restricted stock units as a form of long-term equity granted to employees with restrictions on ownership. If used strategically, the restrictions placed on the stock may help the company meet their long-term goals. Usually, the restrictions placed on the shares involve a vesting period that must be satisfied for the employee to obtain full ownership of the stock. If the company’s goal is to build a team of employees that will stay and contribute to the long-term goals of the company, the shares may have a time-based vesting period. For example, a key-employee gets hired by the company and receives a restricted stock award that takes 10 years to vest. In order to obtain the full ownership of their stock, that employee will have to put in at least 10 years with the company. Another option to meet profit or growth-based company goals is to use a performance-based vesting period where the employee must meet certain performance goals in order to obtain full ownership of the stock. The performance measurements used should be specific and measurable, giving the employee confidence that their hard work will be honored and rewarded.

It is important that your businesses stock incentive plan is built to meet your specific needs. The attorneys at Simpson, Jensen, Abels, Fisher & Bouslog, P.C. are experienced in handling complex business issues. Contact us at (515) 288-5000 to discuss your goals with our firm.

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