Employee stock options come in various different shapes and sizes. If your California business has some employees that consistently produce excellent work, you will no doubt be keen to ensure that they stay with your organization for many years to come. You can accomplish this goal by rewarding them for contributing to the company’s future success using equity.
So, what is the best way to incentivize your employees with equity? The answer, of course, will vary significantly from one organization to the next. However, many entrepreneurs and small business owners find that the following plans are among the most effective:
Incentive Employee Stock Options
Offering incentive stock options to your key employees can be an excellent way to make them feel vested in the company. Such a plan gives you the ability to sell stock in your organization to your workers at a price that is below market value.
If your employees choose to purchase stock in your company, they can sell it off immediately if they wish. Generally speaking, however, most workers prefer to hang on to their equity for at least a few years, so its value can grow.
Should you wish to offer incentive stock options to your employees, you will need to do so under a written plan document. Since this document has the potential to impact your organization for many years to come, you would be wise to have your California business lawyer help you put it together.
Phantom Employee Stock Options
Phantom stock options are similar to incentive stock options in that they both allow your employees to benefit financially from the success of your business. However, there is one significant difference between the two plans: A worker that has phantom stock in your organization does not legally own any portion of your company.
If you choose to incentivize your employees using phantom stock options, you will issue them a hypothetical block of shares in your organization. The value of that stock will then be placed into an account in their name. As the value of your company increases, so too will the amount of money in their account.
Phantom stock options are typically a little simpler to set up than incentive stock options. However, if you want to avoid making any costly errors, it is still smart to have your business attorney in San Diego walk you through the process.
Stock Appreciation Rights
Stock appreciation rights are essentially another type of phantom stock option. They are a way of incentivizing your workers to stay with your company without actually giving them any legal ownership of the business.
Should you choose to offer stock appreciation rights to your employees, however, you will not need to fund an initial account in their name. Instead, the account will be funded as the value of your organization increases, incentivizing your workers to grow your company as quickly as possible.
A California Business Lawyer You Can Count On
Of course, there are many considerations when choosing the right employee stock option plan for your company. You will want to remember to look to the IRS and your state’s government regulatory system to be sure you are compliant with all the rules and regulations. Do you need a business attorney in San Diego to help you figure out the best way to offer equity to your employees? If so, please do not hesitate to give the Semanchik Law Group a call at (619) 535-1811. Our experienced team would love to help you incentivize your employees and take your business to the next level!