New in the Entrepreneur’s Toolkit: Stock option plans and other compensation tools for your startup

New in the Entrepreneur’s Toolkit: Stock option plans and other compensation tools for your startup

In our latest addition to the Entrepreneur’s Toolkit, we focus on compensation strategies for employees. We look at the financial tools you can use in combination with a base salary, including employee stock option pools (ESOP), profit sharing and bonus payment plans.

These articles cover a key component of your startup’s overall financial strategy. They can help you get started in thinking about resource compensation and the various incentive tools and tactics you can use as leverage to secure top talent and hire key positions—strategies that are most relevant for startups in the formation stage.

Stock option plans can help build long-term commitment and a real sense of ownership for early employees (not to mention capital gain, too). Typically you’d start with issuing the founders’ equity and stock and then build a stock option plan to grant options to employees, board members and advisors. The articles below will help you determine what to expect when looking at option plans and how it will affect the capital structure of your company. This clarity is important for obvious reasons, but especially so when you need to raise financing.

We also delve into the common pitfalls to avoid when designing option plans—you want to get it right the first time to prevent problems later on. As well, we cover the pros and cons of profit sharing as a complementary or stand-alone incentive tool.

Read our latest articles on employee compensation:

Employee stock options: A compensation strategy for your startup
Stock options plans are common to executive compensation packages, but they can be offered to other employees as well.

Offering employees equity in your startup: Stock options and plans
Why offer employees equity in your startup? Allocating equity to your employees in the form of stock options or plans generates key benefits.

Profit-sharing plans for startups: Bonus or deferred plans
Profit-sharing plans can be a useful incentive tool to help employees focus their efforts on the long-term success of your startup.

Rewarding your critical resources: A compensation strategy for startups
Given the competitive nature of the business world, many companies have realized it is vital to recognize and reward their most critical employees.