Journalism

Is it really good for new executives to give equity directly?

2021-04-01

Lao Zhao, a former senior executive of a listed company, resigned to establish his own technology company after accumulating management experience and customer resources.In order to solve the technical problems, he hired Mr. Yang, a returnee expert, as the vice president of R & D of the company.


Because he had worked in a listed company and had some knowledge of equity incentive, he also hoped to bind Mr. Yang in this way. When Mr. Yang joined the company, he also hoped to bind him, 5% of the company's equity was transferred to him free of charge.


However, after a year's work, Mr. Yang did not play the expected role and proposed to leave at this time.Because there is no prior agreement, Zhao did not know how to take back his equity?



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case analysis


Many companies do equity incentive, and it is very easy to grant equity directly when the senior executives are employed, especially in start-up companies.To be sure, allowing employees to hold shares directly is a very good way to bind, However, due to the lack of long-term understanding and running in, it is common for executives' performance to be inconsistent with expectations, so the company should be particularly cautious.


In the case, Lao Zhao has a good sense of equity incentive, but the following issues need to be considered:

Incentive access criteria


It is recommended not to grant equity directly to new executives and employees, We can negotiate in the form of options (or virtual equity) and agree on the conditions for confirmation of rights, In this way, both parties have a clear goal, and they can cancel the option (or virtual equity) if they find it inappropriate, It not only enhances the competitiveness of recruitment, but also retains the flexibility of the company.


Tip: Generally speaking, it is only after running in for more than half a year that senior executives can basically confirm whether they are competent, If restricted stock is to be used for incentive, it is suggested to set the threshold for the incentive, For example, "the employee who has been employed for more than one year is not within the scope of incentive". If there is a special outstanding person, he can be motivated after meeting the entry time.

Incentive assessment criteria


Equity incentive should have both incentives and constraints, Whether it is options, restricted stock or virtual equity, it is necessary to clarify the assessment period and assessment requirements, The company can take the completion of the overall goal as the standard, or set up different assessment methods according to the positions of senior executives.


For example, for technical developers, they can obtain corresponding intellectual property rights and generate sales revenue by developing products. For sales personnel, they can take the amount of sales revenue as assessment requirements. For personnel in functional departments, they can take the proportion of administrative expenses in total revenue as assessment requirements.


Tips: the above assessment methods need According to the company's strategic objectives, development stages and the differences of various departments, the right one is the right one.

Incentive exit criteria


Considering the admission criteria and assessment criteria, many companies will ignore the employee exit agreement. For example, when the employee leaves the company, dismisses, retires, or transfers his post, he does not know how to deal with the situation?


In general, We will divide exit into "non negative exit situation" and "negative exit situation". "Non negative exit" refers to the situation in which employees can not continue to enjoy equity incentive due to normal resignation, retirement and job transfer."Negative exit situation" refers to the situation that employees are dismissed due to violation of national regulations and company system and infringement of company interests.For the two cases, we need to treat them differently, especially for those who contribute to participate in the incentive, The former can consider to return the principal and buy back the equity according to the agreed interest payment, while the latter may consider the partial return of the principal or not according to the seriousness of the case.


Tip: no matter what way, we need to make an agreement in advance to avoid disputes.

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Suggestions on equity incentive


In the above analysis, we have analyzed some details of the incentive. Before the official launch, we suggest that the boss should make detailed planning according to the following points:


1. What are the company's strategic objectives in the next 3-5 years?


Equity incentive is to serve the strategic development of the company. The clearer the strategic objectives, the more conducive to the implementation and implementation of the plan. After confirming the target, the company will decompose the target into clear items and target budget. In addition, we should consider whether there is a future listing plan and when to start the plan, which plays a decisive role in the design of equity incentive.


2. Is the ownership structure clear?Is the financial and personnel management system sound?


Many bosses have several different affiliated companies and carry out the same or different businesses at the same time. When equity incentive is started, it will be found that the ownership structure does not match the business structure, resulting in the personnel unable to correspond with the business and operating results. Therefore, the rationality of equity structure is the basis for the company to start equity incentive, especially the real equity incentive.


In addition, Effective financial accounting and budget system, as well as the salary, performance and evaluation system of human resources, It has a very important support for the design and implementation of equity incentive scheme.


3. What is the purpose of equity incentive?


Equity incentive is not a "method" that can solve all the problems of the company. Some institutions deify equity incentive and think that it can solve the problem by doing incentive.Equity incentive can be an "accelerator" for enterprise development, but it is not a "big pill" to solve all problems.The development of the company is closely related to the industry and market environment. In order to achieve the desired effect of equity incentive, enterprises should make clear the purpose of equity incentive and manage the expectation reasonably.


The case in this paper is analyzed from the perspective of incentive for a certain employee. In fact, this is far from the whole picture of equity incentive. There are many factors that need to be considered to implement an equity incentive that meets the needs of enterprise development. After fully understanding the situation of the enterprise, we also need to select the appropriate incentive tools (real shares, virtual equity, etc.), determine the key incentive elements (fixed person, fixed amount, timing, etc.), set performance evaluation conditions and equity management measures.



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