Every new business needs financial backing and a group of founders. In fact, in the beginning, it is usually just a collection of a few that get the company started. That’s why many new startups don’t prioritize a stock incentive plan for future employees.
But the truth is, it is important to have a plan and financial scenarios for all stages of your business from the get-go, including the day that you are big enough to finally hire employees! If you utilize a stock incentive plan early on, you will be well-prepared to hire the best and brightest and offer them incentives that other startup companies may not have planned for.
To help you make the most of a stock incentive plan, we are going to take you through everything you need to know about what it is and how it is designed to help you financially benefit!
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1. Offer long-term rewards
A stock incentive plan allows even those that are cash-poor to attract quality employees even when there may not be enough immediate capital to pay them an attractive salary. What a stock incentive plan does is offer them a long-term reward for helping the company grow and can often
2. You don’t have to create one alone
If creating a stock incentive plan isn’t one of your strengths, or you feel like you don’t have the time in your crazy startup life to properly commit the time to create one, then there are ways to get assistance in building one out. There are some great programs that are designed specifically for startups and can guide you from everything from formation to financing. So you don’t have to build your stock incentive plan all alone.
3. There are multiple strategies with incentive stocks
There are three common strategies that are used for incentive stock offerings that you can offer employees. This includes cash upfront for shares, sell enough to cover exercise costs or a cashless exercise. The most simplistic option is to pay with cash, but it really is up to the business and what is best for their financial situation and predicted circumstances.
4. It helps your offer realistic benefits
If you are a startup, you are likely a bit short on cash. This means that there may be the predicament of needing to hire top talent while not necessarily being able to pay them market-level salaries. So to make up for the shortfall, offering a stock incentive option to potential hires can be a great way to seal the deal. However, it is important to remember there is risk involved for all parties involved—both the employee and employer. So having a solid stock incentive plan will help mitigate your risk.
5. Use it to get your board’s approval
Having a stock incentive plan that outlines each employee’s stock option is a great way to easily get your board’s approval. It allows your board o see the financial implications of the stock option plan while also ensuring that everyone is on the same page when it comes to what can be offered to prospective talent for the company and obligations to current employees should the company come into hardship. In most startup companies, the employee stock option plan is a collaborative effort and the plan is able to capture what has been agreed for easy reference whenever needed.
Stock incentive plans are an important part of any startup company, even if there are not any employees currently working there. They will make it that much easier for your company when it does arrive at the stage of being able to bring on new talent, allowing you to grow your team while ensuring that your financial situation is understood and there are not blind promises made!