Equity incentives are vitally important recruitment and retention tools for high growth tech companies. We provide an overview of the alternatives that are available and how you can avoid the bear traps.
Whether an employer will prefer to award shares or options over shares to an employee will depend on various commercial considerations. Granting options over shares can be more flexible for an employing company or group and can avoid complications which could arise if employees held the shares directly. For example, options do not allow the option holder to vote or receive dividends on the shares. In addition, the employing company may be eligible to obtain a deduction from its profits chargeable to corporation tax on the exercise of the option equal to the option gain made by the employee. Options are simpler to deal with when an employee leaves employment.
This note provides an overview of some of the methods whereby employees can be provided with shares in their employing company or employing group or granted options to acquire such shares at a later date.