What’s Their Incentive? Examining Incentive Compensation in Start-ups

Traditional equity incentive compensation for a start-up’s employees, including its founders and other associated persons, include grants of stock (restricted or otherwise) and stock options (rights to purchase company stock at a discount in the future). This practice note identifies and discusses restricted stock, incentive stock options, and non-statutory stock options—three of the most common types of equity and equity-based incentive compensation awards issued to a start-up company’s founders and key employees. It also examines the equity incentive compensation plans to which such awards are subject and provides practical guidance and advice for drafting these plans.

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Related Content

• Equity and Incentive Compensation Arrangements for Start-Up Companies
  Reviewthis introduction to the equity and incentive compensation plans and agreements that start-ups often use to attract and retain key personnel.
• Founder Stock Purchase Agreement (Vesting)
  Consult this agreement used in connection with the purchase of company equity by a founder pursuant to a vesting schedule.
• Promissory Note Secured by Pledge of Stock (Start-Up, Founder)
  Use this template that enables the purchase of common stock from a start-up company using a promissory note that is secured by a pledge of the stock being purchased (note that this may be prohibited in certain states, like California).

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