Equity Incentive Programs: Strategies for Employee

Transcript:Equity Incentive Programs: Strategies for Employee:
Equity Incentive Programs: Strategies for Employee Retention and Strategic Growth Dave Shafer Attorney, Business & Corporate Group PilieroMazza PLLC September 15, 2020 Dave Shafer Dave counsels clients on a broad range of business and finance matters, such as mergers and acquisitions, purchase and sale of private businesses, commercial financing, private offerings of debt and equity securities, venture capital and private equity transactions, and general governance issues. He advises clients on all phases of their business life cycle, from formation and start-up through growth, operation, and sustainment to sale of the company—often counseling clients on matters related to customer and vendor contracts, securities and tax compliance, and employee incentive offerings. 2 Dave Shafer Business & Corporate Group PilieroMazza PLLC dshafer@pilieromazza.com 410.500.5551 About PilieroMazza 3 Overview and Agenda SDVOSB Regulatory Environment Potential Purposes of Incentive Programs Strategic Considerations Incentive Plans Available Synthetic Equity Options True Equity Options Implementation and Integration 4 SDVOSB Regulatory Environment Unconditional and Direct Ownership At least 51% of the SDVOSB must be unconditionally and directly owned by one or more SDVs Financial Benefits Requirement SBA’s rules require that the veteran receives the financial benefits commensurate with his or her ownership 5 Employee Incentives under SBA Limits 6 Attracting and retaining talent is crucial to company growth In some ways, SDVOSBs are at a disadvantage in the talent market Certain models for employee incentives are limited or not available: Bonuses/Compensation is limited by the general rule that the veteran must remain the highest compensated individual Equity Incentive Plans (e.g. stock option plans, profits interest plans, or restricted stock/unit plans) are limited by the fact that the veteran cannot be diluted below 51% Purposes of Incentive Plans 7 Recruit: All forms of incentive plans are helpful in recruiting employees Retain: Incentive plans can reward employees who remain at the company Motivate: Incentive plans can reward employees for a company’s appreciating value and can align their interests with the shareholders Strategic Considerations – Determining the Appropriate Starting Point 8 Not one size fits all Relevant and useful no matter the stage of a company’s life cycle Evaluate company culture, talent pool and current employee retention and motivation programs Alignment of the following: Company and shareholder goals Employee capabilities and commitment Tasks and objectives, and confidence it can be done Strategic Considerations - Fundamental Questions Regarding Sharing in the Upside 9 Does the company want to share real equity? If so, how