What Are Your Stock Options Vesting Options?
Picking The Right Stock Options Vesting Plan For Your Employees
Founders of startups often establish equity-based compensation plans to allow key employees to share in the company’s success. It’s a win-win situation, benefiting both the company and the employees. But when it comes to Employee Stock Options Plans, choosing the right vesting triggers can be a challenge.
Let’s explore the top 3 plans and their pros and cons:
#1 Timeline-based Compensation:
This is the most common approach to stock options. Employees receive a set amount of unvested options that mature over time based on their service to the company. Initially, there is a longer vesting period (Cliff), which gradually reduces over time. This ensures that only long-term employees become shareholders, and it incentivizes talented individuals to stay with the company, expecting future gains.
👍 Pro: Retains talent and discourages job hopping.
👎 Con: Fails to differentiate between high-performing and average employees.
#2 Performance-based Compensation:
If you value Key Performance Indicators (KPIs) and Milestones, this plan is for you. Employees receive a predetermined amount of stock options that vest gradually as specific goals are achieved. Often used for sales professionals, it separates the exceptional performers from the rest. The flexibility of defining reasonable goals for each employee is another advantage.
👍Pro: Recognizes and rewards hard work and motivation.
👎 Con: May add stress and create a competitive work environment if milestones are not properly set.
#3 Company Goals-based Compensation:
In this approach, stock options vest as a result of significant company-wide events like an Exit, funding investment, or share price milestones. It doesn’t directly depend on an individual’s performance.
👍 Pro: Aligns employees with company goals and major successes.
👎 Con: Lacks differentiation and may grant substantial stock options without a proven commitment.
Discover which option suits your company best and make an informed decision. >> Read more
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About altshare
altshare is a leading, fast-growing Equity Management & Compensation Plans Administration solutions provider. We love challenges. We are obsessed with our clients. We are on a mission to redefine the way founders do equity. All our products & services are supported through the altshare platform — the only equity management platform built for entrepreneurs.
