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Choosing the Right Program
To a company that is interested in turning its employees into business-oriented equity stakeholders, a diverse array of equity-sharing vehicles is available. From stock options to ESOPs, stock bonus awards to phantom equity, each one of these vehicles has its own unique mix of features. Tax treatment, accounting rules, and the psychological/motivational impact are just some of the factors that vary from vehicle to vehicle.
One thing is near certain: there is no single “perfect” vehicle. Dollars to doughnuts, you will find that for each available equity sharing vehicle, there will be some aspects that will be attractive, but other aspects that will be not so attractive. An ESOP, for example, helps to create a strong “team” sense of shared purpose among employees, and offers exceptionally attractive tax benefits to both the employees and the company itself. On the other hand, it significantly restricts the ability of management to control exactly which employees get equity and how much, since those aspects are controlled by legal prescription. Conversely, a Stock Grants program in which a company awards shares at its own discretion, much as companies traditionally award year-end cash bonuses, assures the company of broad flexibility to choose who will get shares (and how many they will get), but can lead to problematic tax scenarios and a more individualistic attitude on the part of employees.
But each company is itself unique. So an issue that may be a show-stopper for one company may be no more than a minor speed bump for another. Choosing the vehicle – or set of vehicles – for your particular company, therefore, involves a process of testing the specific features of each potential equity vehicle against the distinctive characteristics and priorities of your company.
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