7 things to think about before setting up a share or option program

When you picture your company growing, do share and option programs strike you as powerful tools for driving the progress you're after? If so, what goals are you actually hoping to hit by introducing this kind of incentive for your team? Most startups and scale-ups today have some form of share or option program in place for employees. Even so, there's a fair amount to think through when figuring out the best structure for your business.

In this article, we'll walk through the 7 essential elements you need to build a robust, viable, and well-suited share or option program for your company.

You'll get the insight and tools to make informed decisions, aimed at bringing your vision for the company's future to life. Share and option programs really can act as a catalyst for engagement and loyalty, but landing on the right structure takes thought.

Here are seven key points to consider.

Before you step into share or option programs, you need a clear sense of what you're trying to achieve. Is the goal to attract top talent, lift employee motivation, retain key people, save on cash compensation, or some combination of those? Balancing those objectives against the impact on existing shareholders and other stakeholders is critical.

A share program has to work in harmony with your current business plan, ownership structure, articles of association, shareholders' agreement, and any existing incentive agreements. Look at the room you already have to maneuver: has the board or general meeting already approved a share compensation program? Are there expectations or promises that need to be honored or factored in? What motivates the different employees? Are a lot of people supposed to take part, or just a few? If only a small group of employees will be part of your share or option program, clarifying expectations becomes even more important; you want to land on something that matches what motivates them.

Another thing that has a big effect on structure choice is the valuation and risk profile of the company. That can matter a lot for the barrier to entry for employees across different structures, both in terms of cost and in terms of risk. And it can have a significant impact on the tax consequences for both the company and the employee.

There are several share programs to choose from, and each has its own characteristics. You need to figure out what suits your company's stage, needs, and goals best. Should you go with restricted shares, a combination of shares and options, or do you qualify for options for startups, or should you consider the Kruse Smith model?

If you go with options, there are several terms to decide on:

- Exercise price

- Start date and expiry date

- Vesting schedule (time, milestones)

- Whether to allow accelerated vesting

- What happens if someone leaves

You have a lot of room to maneuver here, but if you want to qualify for the startup option scheme (which is tax-favorable for both the company and the employee), several criteria need to be met. Doing the groundwork properly matters.

It's about finding the right balance between what's practically workable, the risk, the cost, and tax optimization for both the company and the employees. Different structures carry different tax consequences for both sides.

Once you've decided which program fits, you need to work out a plan: who gets included, how much they receive, and other forward-looking considerations like new hires or upcoming funding rounds. It's also important to set clear guidelines for what happens to shares or options if an employee leaves. You want to avoid ending up with a lot of passive owners, but that has to be balanced against what's fair to the recipients. The tradeoffs need careful weighing.

Equity programs can be complex, and it's essential that the recipients understand what they're getting, including the potential costs, risks, and upside. Most people struggle with this. And anything someone doesn't understand has no real motivational pull either.

You can do something about that by making the information accessible and easy to grasp, not just at the time of signing, but as the company evolves. A digital portal that displays this information and lets employees follow it "live" works well. They get a clear view of how their holding is developing, see the vesting schedule in action, and stay on top of important dates. It makes the abstract concrete, and employees can see their work translating into real value, which feeds back into motivation.

Share and option programs require careful administration and compliance with reporting requirements. You have to report at different times for different structures, with different data. As the company leader, that responsibility sits with you, and people often turn to their accountant for help. That means staying in regular dialogue with them, and making sure they have the right data on hand: documentation, amounts, dates, and any other relevant terms. With a dedicated portal, all the necessary data can be easily accessible (and correct) for you and your accountant. The accountant can then pull what they need themselves, without dragging you in to hunt for information across folders in your personal filing system.

In today's digital era, it's important to use technology to simplify the admin around share and option programs. A platform like Unlisted's portal can help you issue options directly from the platform without needing legal assistance, using templates designed around best practice, which gives you a sound structure from the start.

From there, it's straightforward to keep an overview and manage ownership structures in an efficient, transparent way that makes admin less time-consuming and far easier. A dedicated employee portal makes sure you get the full motivational effect of these incentive schemes.

Setting up a share or option program shouldn't be treated as just a financial decision, it's a strategic tool that can have a meaningful impact on the future of your company.

By thinking through these elements carefully, you can land on a program that isn't just fair and well-considered, but also tuned to support your company's growth and vision.

If you'd like more clarity and advice around share and option programs, Unlisted's advisors can support you through the process.