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Employee Stock Option Plans: Your Essential Guide

Employer Giving Speech About Employee Stock Option Plans to his Employees Sitting In Office

Employee satisfaction is crucial for any company to thrive and succeed. Happy employees don’t just work hard; they’re loyal to your business and they could bring in new customers and employees. 

Do you want your staff to feel like their hard work has a direct payoff? Are you interested in offering special benefits that can set your workplace apart from the rest? If so, consider employee stock option plans.

Offering employees the opportunity to invest in your company can help incentivize them to work hard and go the extra mile. If you haven’t offered employee stock before, don’t worry; TrinityPoint Wealth is here to help.

In this article, you’ll find some helpful insight into the difference between employee stock option plans and how you can go about creating the right plan for your workplace. 

Different Employee Stock Option Plans

The right stock options can double as a retirement plan, but that only works if it’s set up the right way. There are two main types of stock option plans: incentive stock options (ISOs) and non-qualified stock options (NSOs). The main difference between both plans comes down to employment.

ISOs should be reserved for your full employees because they can’t be issued to entities. NSOs are available to both your full-time employees and independent contractors you choose to bring on.

Employers that heavily rely on independent contractors may want to look into NSO options for stock. They can be very helpful during negotiations and can help sway potential contractors to signing to work with your company. 

ISOs can have a special place for employers who are deep in their building and funding stages. When trying to gather enough money to run your business, high salaries and other perks can be difficult to justify. Providing stock options to your employees doesn’t just give them something to incentivize them; in the end, it could also help save you money on employee costs.

If you want to be careful about what options you offer, you may want to consider offering restricted stock units (RSUs) and restricted stock awards (RSAs). Both come with specific requirements you need to meet, but there are differences around timing. 

Under RSUs employees can buy shares as soon as certain restrictions are met. You may require that an employee stays with a company for a certain number of years before you offer them stocks or meet earning goals.

Companies that go down the RSA route have many of the same restrictions, but the main difference revolves around when you can purchase. If you have an RSU, you can purchase shares on the day they’re available. 

Making Your Own Employee Stock Plan

Now that you know the basics of employee stock plans, it’s time to start thinking of the plan you’re going to offer your own employees. 

There are plenty of things to consider when coming up with your own employee stock plan. Many of these things are going to be a matter of personal preference, but there’s a lot you can do to ensure you find the right plan for your company.

Consider the Future

Stock options can be a great way to reward loyal and talented employees and showcase the growth potential of your company. Unfortunately, these kinds of plans only really benefit companies that have set aggressive goals for growth. 

Do you know when you’re going for your next round of funding? How many employees can you see bringing in next quarter, or even throughout the year? Are there investors lined up to help bring your product to the next stage, or are you still looking?

Stock can be a powerful incentive for employees, but only when it is handled the right way. Stock plans that aren’t well thought out could harm employees and the companies that issue them.

Before you decide what you want to do for stock options, consider if offering stock options is a good idea in the first place. If things don’t line up with your overall plan, then it may be best to hold off for now.

Create Buy-In 

One of the biggest mistakes employers make is creating an ESOP and assuming that just having it is enough. This is why you need to do what you can to create buy-in. 

It’s possible that some of your employees may have never participated in an employee stock plan before. Others may have gotten burned by previous employers in the past and may not be interested in investing in anything again. 

Take time to come up with presentations that explain to employees why the investment plan is good and how they can participate. Have plenty of people on hand to answer questions from employees that are new to investing. 

Think About Your End Goal

When some employers think about offering stock options, they run into trouble when they don’t think about ultimate end goals. Offering your employees stock is one thing, but having it fulfill certain goals with compensation and morale can be even better.

The nitty-gritty details of what you offer employees are going to come down to a matter of preference and financial goals. Some companies may be willing to give their employees more in stock in lieu of a lower salary, and others view stock as something only senior employees get.

Take time to talk to other key stakeholders in HR about the larger goals your stock options could meet. The right plan could be a great bargaining chip for bringing in new talent. 

Get the Right Help — Call TrinityPoint Wealth, Today!

Employee stock option plans can make or break your overall benefits offerings. You’re going to want a plan that doesn’t just benefit employees but can also help your company as you grow.

Do you have questions about the best way to create stock options for your employees? Are you interested in learning more about retirement plans?

Regardless of what you need, TrinityPoint Wealth is here to help. Contact us today so we can think about the best way to reward your employees and help your company.

This material prepared by TrinityPoint Wealth is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Opinions expressed by TrinityPoint Wealth are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. TrinityPoint Wealth, however, cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source. Materials herein were prepared by AGI Marketing. TrinityPoint Wealth and AGI Marketing are not affiliated.

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