Startups · Entrepreneurship

How much should I allocate to employees equity plan?


September 9th, 2016

I am currently in the process of putting together the corporate structure of my company with legal counsel. With this in mind, I was wondering for an early stage company what percentage of the equity should be allocated to the equity incentive plan in order to reward employees. advisors, etc. with stock options.

Laura Oliphant Business Development and Venture Capital Professional

September 9th, 2016


Alejandro Cremades Author of The Art of Startup Fundraising & Serial Entrepreneur

September 10th, 2016

It depends on the stage of your company. At the very early beginning you may want to allocate anywhere between 15 to 20% to the pool for employees, advisors, and directors. 

When allocating the shares for the equity incentive plan an important question to ask yourself is the level of seniority of people that you may need to hire. The more experience, the more stock you will need to grant in order to attract them.

Moreover, once you head into your Series A round of financing institutions (e.g. VCs, PEs, etc) may ask you to increase the pool a little bit to continue on-boarding talented individuals. It is important to note here that if they ask you for an increase on the pool of more than 5% that basically means that they either want to fire you and replace the CEO position or that they are interested in bringing fresh senior management.

Hope this helps :)

Tahir Naim Executive Compensation and Benefits Attorney

September 11th, 2016

20% of authorized is generally what is set aside in an equity incentive plan. Be sure to have a fairly large authorized number (in millions) if you're looking at growing the company significantly. So many clients come to me having formed their company and authorized only 2,000 shares and issued them all to themselves. Makes for a little more work.

Wayne Hitchens MD - iBamcy Succession Planning Strategists | Adding Strategic Value | Preparing Owners & Businesses For The Final Exit

September 12th, 2016

It is entirely dependent on what your personal exit strategy is and what your tax jurisdiction is.
As far as skin in the game is concerned, it is critical that the share options are paid share options, with the correct tax structures.
I would agree with the other commentators in respect to percentages except that there is no clear legal answer.

It is all about the exit.

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