Equity: A Strategy for Recruiting and Retaining Talent

By Jonathan Laddy:

Now that the economy is showing signs of growth, your company may start facing stiffer competition to attract and retain talent.  Equity opportunities within a company are one of the ways companies make themselves more attractive to potential and existing employees.  In addition to a recruiting and retention tool, equity also creates long-term buy-in and ties the company’s success to the employee’s success.

One common equity strategy is to issue stock options.  Stock option grants are formal agreements between a company and an individual (generally employees; must be employees for Incentive Stock Options) that give the individual the right to buy a specific number of company shares at a set price within a defined period of time.  As the value of the company increases, so does the value of the option.

While offering stock options may help your company to get an edge with the individuals you are working to attract and retain, implementing and tracking a stock option program can be complex with both pros and cons.  Therefore, it is highly advisable to work with your tax professional and your attorney in the development of the program and as specific events occur or as questions arise.

Once a stock option program has been implemented, you will have questions from your employees, prospective employees, and possibly others who may qualify for or have already received a stock option grant.  While you will always want to advise each option holder to obtain their own professional guidance, you will also want to have an understanding of how the plan works at the employee level.

Future posts will dive into the specifics of various types of equity/option plans.