Long-term compensation and equity incentives for employees. Compensation arrangements often include a base salary, and one or more long-term incentives focused on performance over the years. Long-term incentives are designed to accomplish three goals:
- Provide an incentive for long-term performance
- Retain employees
- Align employee’s interests with the shareholders’ interests
There are many different forms of long-term incentives; they depend on the type of company and its goals. Here are some examples of long-term incentives that companies can use:
- Stock options
A stock option is a right to purchase stock from the company at a fixed price. The employee’s right to purchase the stock usually terminates following the termination of the employee’s employment or at the end of the option period (usually ten years).
- Restricted stock grant
A restricted stock grant is a grant of the company’s stock that the company has the right to repurchase from the employee if the employee’s employment terminates. The restricted stock is typically freed from the company’s repurchase right over a vesting period.
- Employee stock purchase plan
A common form of a long-term incentive at public companies is an employee stock purchase plan (ESPP), allowing employees to purchase company stock at a discount. An ESPP can be structured so that the employee purchases the stock at the most favorable stock price during the offering period.
As you can see, there are many different long-term incentives that companies can use to accomplish their goals. This is a way to protect and improve your business turnover. Protect your employees and company with employment law. Make sure you are on the safe side. If you have any questions or need any help with employment law, give us a call. Focus Law is an established and growing law firm helping clients with a wide range of real estate needs. We’re available at (714) 415-2007, or reserve your spot by clicking here.