Equity Compensation Plan Design for Public Companies

Summary

This practice note discusses the design of equity compensation plans for public companies. Publicly held companies often grant equity awards to executives and other key employees (and, in many cases, even to fairly low-level employees) to align their interests with those of the shareholders. Equity compensation refers to various noncash remuneration received by employees and other service providers (i.e., directors and sometimes, contractors). Types include stock options, restricted stock, restricted stock units, employee stock purchase plans, performance shares, and more. The attraction of equity compensation to the service recipient is that it reduces the amount paid out in cash, which can be especially attractive to start-up companies that may have limited cash on hand to attract top talent. It also incents the service recipient to participate in the growth if the company. In addition, except to the extent the service-recipient/company's equity loses value from the date of grant, ...