A privately-held company had an equity compensation plan for executives and employees that had been developed several years earlier in a very different economy. It relied exclusively on stock options with some ISOs and was primarily designed by an employee who was no longer employed there. The plan was not well understood by participants and the board did not see alignment between the plan and the stated compensation philosophy of the company. It was not clear whether the comp plan would actually deliver the intended results in the current economy. There was concern on the part of the owners that there be a proper balance between owner returns and employee incentives.
A NextLevel Partner led an evaluation and planning process that included a thorough review of the many documents and calculations associated with the plan. NextLevel made long-term projections to see the impact on the owners and on the plan participants under various economic conditions. Working with compensation consultants, attorneys and top management, several detailed recommendations were developed to improve the plan to meet all of its objectives.
The equity compensation plan and stock grant agreements were amended and the documentation was re-written. The resulting plan(s) were tied to competitive market data on magnitude and value of equity grants. The new plan included a mix of RSUs and Options depending on job level with executives’ RSUs subject to milestone performance vesting targets. Meetings were held with participants to explain the plan changes and solicit feedback, and presentations to the board were developed to submit the plan for approval. The end result was a new equity compensation plan that was appropriate to the industry’s economic conditions, and whose terms and impact could be clearly communicated and understood by all participants and board members.