What’s Their Incentive? Examining Incentive Compensation in Startups

Traditional equity incentive compensation for a startup’s employees, including its founders and other associated persons, includes 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 startup company’s founders and key employees. It also examines the equity incentive compensation plans to which such awards are subject and provides practical advice for drafting these plans.

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Related Content

• Founder Stock Purchase Agreement (Vesting)
  Consult this agreement that is used in connection with the purchase of company equity by a founder pursuant to a vesting schedule. 
• Promissory Note Secured by Pledge of Stock (Startup, Founder)
  Read this form that enables the purchase of common stock from a startup 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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