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Pre-IPO Stock Incentive Plans

As a pre-IPO company, we would like to offer stock incentives to current employees. Can you point me to a good resource to research this topic? Thanks! -Steve


Topic Expert
J.D. Floyd
Title: Owner, CFO
Company: CFO Outsourcing Solutions, Inc.
(Owner, CFO, CFO Outsourcing Solutions, Inc.) |

No real source because the circumstances vary with company. But the most simple approach is either "plain vanilla" ISO/NSO or RSU's. There are a lot more questions to be asked such as how often or when was last valuation, size of option pool desired, how many employees and opion of investors towards stock options. I see that your employer is an "LP"; is that the company to issue or a subsidiary? Send me a private email and we can discuss further. J.D.

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

Check out the CEP Institute as Santa Clara University; they have GPS branded research documents on different types of equity programs. With privately held companies, the communications to the equity recipients will be complex as rules 144 and 701 may need to be explained and affiliate / non-affiliate recipients "rights". Hope this helps.


David Westbrook
Title: CFO
Company: Rockefeller Financial
(CFO, Rockefeller Financial) |

Both tax and accounting issues. Deloitte, E&Y, KPMG and PWC all have 300 plus page guides on stock based compensation that you used to be able to download from their websites in pdf format that discuss the accounting in detail.

Randall Bolten
Title: CEO
Company: Lucidity
LinkedIn Profile
(CEO, Lucidity) |

Go to, a post by Andy Rachleff entitled "The Right Way to Grant Equity to Your Employees." Andy is an extremely seasoned investor, who truly understands how to motivate people.
Good luck! I think stock options are a terrific motivator, and it's a shame that the furor of the past few years has caused companies to shy away from using them.

Richard Connelly
Title: CFO
(CFO, ) |

I had not seen the Wealthfront Equity Plan but on the surface I believe it is an excellent model for private companies.

Jack Judd
Title: Retired
Company: Retired
(Retired, Retired) |

You have been given some good resources above to learn about stock options. An few additional points you should consider -
1. Get legal counsel involved. You will need an plan and option agreement written and approved by shareholders.
2. You will need to have an outside resource provide a company valuation to price the options. This is especially true if you have an IPO in your future as this is a tight review area for the SEC.
3. Work with your CPA firm to understand the P/L implications of future grants.
4. Stock options are dilutive to your present investors. Your desire to offer options may not be what your investors want. Work with your investors on ground rules for the type of employees and option levels for future grants.

Good luck.

Topic Expert
Randy Lewis
Title: Managing Partner
Company: LP Valuation, LLC
(Managing Partner, LP Valuation, LLC) |

Jack hit it on the head. There are also benefit administrators that can help implement a plan. Many find the DIY approach a bit cumbersome. Agreed that if you are truly planning an IPO in the next few years, then you need to be careful. You have three regulatory bodies watching you:

1) SEC
2) DOL
3) IRS - many people forget this last one.

Would be happy to discuss valuation when you get to that point. Best of luck.

Richard Connelly
Title: CFO
(CFO, ) |

Just some things I have experienced. Keep the options simple plain vanilla. Get a 409A valuation each year to avoid running afoul with the IRS. Always issue the options at fair market value, no discount to FMV. As you approach your IPO (18 months out and sooner) make sure that the option exercise price starts to move toward the offering price so that there is no cheap stock charge. Read the literature from EY, PWC, Deloitte and other accounting firms.

Steven Prevost
Title: CFO
Company: The Signorelli Company
LinkedIn Profile
(CFO, The Signorelli Company) |

Thank you all for the wonderful advice! I'm certain it will point us in the right direction. I'll let you know how it goes. Happy New Year!


David Howell, ASA, MBA
Title: Principal, Plante & Moran, PLLC
Company: Plante Moran, PLLC
(Principal, Plante & Moran, PLLC, Plante Moran, PLLC) |

The National Center for Employee Ownership (NCEO) has lots of free and low cost resources. The website for the NASPP (National Association of Stock Plan Professionals) also has a number of resources in its website.

Ted Monohon
Title: VP -Finance / Controller
Company: Fantex
(VP -Finance / Controller, Fantex) |

The above link is a typical way that a lot of Silicon Valley companies structure and think about employee stock options. You will need to adjust this based on your facts and circumstances.

Good luck

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