Equity Incentive Plan
About this form
The Equity Incentive Plan is a legal document that outlines the terms and conditions under which a company grants equity awards, such as stock options and stock appreciation rights, to its employees and other contributors. This form is designed to help companies structure their equity compensation in a way that aligns the interests of employees with the long-term goals of the organization, thereby enhancing employee retention and motivation. Unlike other compensation agreements, this plan specifically focuses on equity-based rewards that can lead to share ownership in the company, a significant benefit for those looking to incentivize performance and commitment.
Main sections of this form
- Purpose: Specifies the objectives of the Equity Incentive Plan.
- Administration: Outlines the authority and duties of the Compensation Committee.
- Effective date and Term: States when the plan becomes effective and its duration.
- Shares subject to the Plan: Details the shares available for awards under the plan.
- Eligibility and participation: Lists who can receive awards.
- Types of Awards: Describes options, stock appreciation rights, restricted stock, and deferred stock.
Situations where this form applies
This form should be used when a company wants to establish a structured equity incentive program for its employees or other key contributors. It is suitable for situations where the organization aims to motivate performance and retention through share-based compensation. Companies preparing to implement or revise their equity compensation plans will find this form essential for legal compliance and effective administration.
Who can use this document
- Companies looking to enhance employee engagement through equity incentives.
- Human resources or compensation committees responsible for administering equity compensation plans.
- Legal teams overseeing compliance with federal and state securities laws.
- Executive management involved in making compensation decisions.
How to complete this form
- Identify the company and its subsidiaries eligible for the plan.
- Specify the maximum number of shares available for awards.
- Outline the criteria for eligibility for awards under the plan.
- Detail the various types of equity awards to be granted, explaining each type.
- Indicate the administration structure, including the Compensation Committee's responsibilities.
Does this form need to be notarized?
This form does not typically require notarization to be legally valid. However, some jurisdictions or document types may still require it. US Legal Forms provides secure online notarization powered by Notarize, available 24/7 for added convenience.
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Make edits, fill in missing information, and update formatting in US Legal Forms—just like you would in MS Word.
Download a copy, print it, send it by email, or mail it via USPS—whatever works best for your next step.
Sign and collect signatures with our SignNow integration. Send to multiple recipients, set reminders, and more. Go Premium to unlock E-Sign.
If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
We protect your documents and personal data by following strict security and privacy standards.
Common mistakes
- Failing to specify clear eligibility criteria for participants.
- Not outlining the conditions for the exercise of options or awards.
- Omitting the necessary shareholder approval clause if required.
- Inadequately defining the roles and powers of the administering committee.
Why use this form online
- Convenient access to the form anytime, facilitating quick implementation.
- Editable fields allow for customization to fit your company's specific needs.
- Reliable legal templates drafted by licensed attorneys boost confidence in compliance.
- Easy downloads ensure that you can print or distribute the plan as needed.
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FAQ
Equity compensation is non-cash pay that is offered to employees. Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees.
An example of incentive is extra money offered to those employees who work extra hours on a project. Incentive is defined as something that encourages someone to do something or work harder. An example of incentive is an ice cold beer at the end of a long bike ride.
Target the Audience. Similar to a marketing plan or a training plan, your incentive plan needs to be targeted to a specific audience. Establish SMART Goals. Offer Appealing Rewards. Align with Your Culture. Incorporate Training. Communicate, Track, Report, Communicate.
Evergreen. After two-and-a-half years with your company, Rachleff's WEP calls for annual grants to all your employees. Each grant should be equal to one quarter of what a new hire would be granted for the same role and experience.
Stock Options If you give your employee a Stock Option, you are basically giving them the promise of purchasing company stocks from you with a certain price. This price is normally better than one could ever find in the market. To give out equity in the form of stock options, you need to start with a stock option plan.
Broadly speaking, equity incentive compensation refers to the grant by a company to its key employees and service providers of an ownership stake.
Most grants of equity under an Equity Incentive Plan are subject to some form of vesting, with time-based vesting being the most common.Under this vesting structure, none of the equity vests until the one year anniversary of the vesting start date, at which point 25% of the equity vests (i.e., the one year cliff).
Never say a number first. Do your research. Know what parts of the equity grant are negotiable. See if you can negotiate other aspects of your offer. Know what you care about most.
On an amortized basis, . 35% equity is $105,000 per year. On average, about 20% of companies that make it to Series A successfully exit, which makes the expected value of the equity portion $21,000 per year. This means that, in total, the average early startup employee earns $131,000 per year.
