Giving minority ownership stakes to employees can be unrealistic for private businesses because of a few major concerns:
Preference that benefits afforded to the current owners are maintained
Giving a value to equity is not easy
The accurate future liability booked in compliance with IRC 123(r) is an extra cost
Private company stock does not have a wide secondary market
Out of the money equity pans are typically the result of the lack of diversification for employees’ investments
Standard equity and stock options pose problems that the Equity Alternative plan eliminates.
Our Equity Alternative plan applies the philosophy of NQDC plans to this business dilemma. The best employees are provided with compensation for their performance and an extra reason to be invested in the company. The business is able to provide employees with the amount they would have been given through equity plans, taking into account the needs of the company and each individual. The amount afforded to employees is usually directly tied to company stock value, but this does not need to be the case.
Because company stock is not given out to employees, there are no problems arising from a situation in which there are multiple owners. The compensation is all cash awarded at an amount that does not require a difficult valuation.
Top talent is inspired to keep reaching business objectives with this flexible plan and its associated vesting schedules.
The Equity Alternative is a great replacement to the typical equity and stock plans, but can even be used in addition to them if that is preferable. Employees are given the advantages of equity and stock options, while all of the hassles that come with them are avoided entirely.
