How to design an option pool to motivate employees

Editor's note: Many entrepreneurs in the creation of http://www.aliyun.com/zixun/aggregation/3518.html "> Internet companies do not pay much attention to the establishment of options pool or do not understand how to design an option pool, Investor Wang Hao in an answer to the question about the basic points of the options pool, and how to design a better incentive for employees of the options pool.

Options and Equity

The Employee Options program is a plan to set aside some of the shares in advance to motivate employees, including the founders themselves, executives, backbones, and ordinary employees, in countries such as Europe and the United States are considered to be one of the key factors driving start-up development.

Options and equity are different, equity represents ownership. An option represents the right to buy a particular title at a specific time at a specific price, and the employee's shares are common stock after the right to do so.

The purpose of the option plan

To attract senior talent without high salary in the early stage of start-up, to compensate management and backbone's entrepreneurial risk, to give employees a sense of belonging, to align their interests with shareholders, to solve long-term incentive problems and to retain talent.

Establishment and size of option pool

The practice in Silicon Valley is to reserve 10%-20% of all shares in the company as an option pool, which is generally determined by the board of directors within the limits set by the option pool and the number of options to be issued, and to determine the price of the right to do so. But pay attention to some distribution principles: the more important to the development of the company, the greater the level of investment in the number of people assigned. The sooner you join the risk, the lower the right price. Generally the same number of employees of the right to the same price. To management and backbone staff mainly, but also some enterprises to implement full incentive.

When giving an option, specify the following details in the contract:

1. Options corresponding to the amount of shares, the right price. In general, a round of financing before the price is very low or free to send, as the company's prospects are constantly clear, prices will rise. The principle of pricing corresponds to the fair value of each share at the time of award (also known as the market reference value), taking into account the motivating role of the recruiter.

2. The start date of the option calculation (grant date), which is the time when the option is to be granted, is usually calculated from the date of entry.

3. The duration of the grant (vesting), that is, the time of the full option hand (vested) for the contract, typically 4 years. In general, options are granted on a monthly basis, that is to say, 1/48 per month (for example, 4 years), which means you can do the right (exercisable).

4. The shortest effective period (Cliff), the general setting only employees in the company to work for a certain period of time, the option of the commitment to enter into force, generally 1 years. In other words, if the employee has been in the company for less than 1 years, the separation is not the right, and once the 1-year, the option immediately reach 1/4, and thereafter each month 1/48, until the resignation or full options.

5. Expiration period (cut-off Period). After the employee has left office, it is necessary to decide whether or not to exercise the right to purchase for a certain period of time, usually set to 180 days.

Right of option (Exercise)

Condition One: The contract is carried out normally. At this time, the employee can be in accordance with the contract agreed to the right of the price of the available options (vested option) to buy no more than the total amount of the company's shares. The right will remain valid as long as the employee does not leave office;

Situation two: Staff turnover. If the employee leaves the company before the cliff is reached and the IPO (listed), the option contract generally stipulates that the corporation has the right to repurchase that part of the option at an agreed price. Different call right clauses can be developed for different reasons. The repurchase price should theoretically be the fair value when repurchase occurs, but it can also be agreed to other prices, such as net assets per share.

Finally, it is necessary to pay attention to the Chinese company law under the framework of equity rights must be corresponding to the registered capital, thus unable to reserve equity. The flexible approach has the following 3 cases:

1. Founder on behalf of the holder. When the establishment of the company by the founder to hold a majority of equity (corresponding to the option pool), the company, founder, employee three parties to enter into a contract, the right of the founder to the staff at the agreed price transfer.

2. Employee Holding company. The employee holds the shares of the target company through the holding company. Can avoid some inconvenience which the employee directly holds the company equity. This approach is generally used before China goes public.

3. Virtual stock. Within the company to establish special books, employees in accordance with the books on the virtual out of the shares enjoy the corresponding dividends or value-added rights. Huawei's approach.

The above is the founder of the company in the design of options pool should be highly concerned about some of the main points, in addition to the important concept of the article vesting (that is, the awarding period), we have previously dedicated scroll, interested friends can see "talking about the equity of start-up companies" vesting "