How to Create a Stock Incentive Plan

How to Create a Stock Incentive Plan

The world has never seen such a huge ubiquity of startups. Everywhere you look whether it be San Francisco, London, or Bangalore  — entrepreneurs are ready to take their vision global so that they can send their message and make their impact. However, building a startup is not the easiest task and one would need to hire the right people to do a variety of important things. You need engineers to build your product and your platform, you need salespeople to close deals for you, and you need marketing people to get your vision across a wider audience. 

So you could be asking yourself — how do I compete with the big companies that can afford to pay much higher salaries than what our company can pay? The usual way is to offer stock incentives. Stock incentives allow you to offer shares of your company's stock as part of an employee's compensation package or provide the ability to buy shares of the company at a discounted rate and at a price that will remain unaffected by stock splits or market volatility. 

So how do you go about creating a stock incentive plan for your employees? Here are the basics. 

Stock Options

A big part of creating the right stock incentive plan for your employees is to offer vested stock options. The reason why this is so attractive, especially if you are a startup, is that shares of your company can be worth a lot more than they currently are. Stock options will allow your employees to buy shares of your company stock at a guaranteed price without having to worry about market volatility. 

As a matter of fact, this is the reason why so many engineers in Silicon Valley opt to work for a startup instead of a big tech company. Working for a smaller but promising startup could give them stock options that may potentially be worth millions in due time. 

Vesting Schedules

Of course, there is always the huge hurdle of having to set the right vesting schedules. This is very important because even though you are guaranteeing a fixed number of shares when you give an employee a compensation package, the vested stock options in that plan will not be given all at once and will have to vest over time. 

Among startups, 4 years is the usual schedule for stock options to fully vest, having proportionate amounts of shares being available to vest every month along with employee salaries. It is important to set the right schedule so that you can ensure you will retain your employees for at least the time it takes to fully vest their shares. 

Find the Right Partner to Handle Your Legal Woes

Of course, all of these things are very difficult to do in the house especially if your company is new. The good news is there are a lot of companies there that offer the creation of stock incentive plans among other legal services to make sure that not only are these plans done correctly but that you and your employees will not have to navigate the legal woes of that may arise if ever there are errors within the implementation of a compensation package. 

Those are the basics — as long as you keep them in mind when considering how to pay your employees, you will be able to get the ball rolling when it comes to turning your vision into a reality. The right compensation packages, after all, is a huge part of attracting all the best employees if you are competing against much bigger corporations. Find the right partners and turn your startup dreams into a reality!



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