Looking to attract and retain skilled and motivated employees? Consider adopting an equity-based compensation plan. Equity-based compensation plans (ECPs) give your employees a direct stake in the success of your business and an added incentive to commit to that success for the long term. There are several types of ECPs, the most popular being:
- Restricted Equity Grant Plan
- Equity Option Plan
- Equity Appreciation Plan (Phantom Stock)
- Equity Purchase Plan
The Restricted Equity Grant Plan is an outright grant of stock to an employee. These plans contain restrictions that incentivize a participating employee to stay with the company by vesting over time. Once vested, the employee has full ownership rights in the company including voting and distribution rights.
An Equity Option Plan grants an employee the option to buy a stated number of units at a specified discounted strike price. The options may vest over a stated period of time, or may vest upon the completion of a specified goal.
An Equity Appreciation Plan (commonly known as “Phantom Stock Plans”) is essentially a bonus plan, which does not grant actual equity to an employee. Instead it grants the employee a right to receive an award based on the value of the company represented by “phantom” shares of stock. These plans usually provide the employee with a cash payment based on the increase in the value of a stated number of shares over a specific period of time, and often include a value-based bonus upon the sale of the company.
An Equity Purchase Plan allows an employee to set aside money over a period of time, which is used to purchase stock at the end of that period, usually at a specified discount. The money that is set aside is deducted from the employees’ pay on an after-tax basis.
To learn more about equity-based compensation plans, feel free to contact Thomas M. Turner, David Hildebrandt, Michael R. Tucci or Jennifer E. Horn in our Corporate and Business Services Group at Mansour Gavin LPA at (216) 523-1500.
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