One way to estimate the amount of equity to offer an employee is to first estimate the amount of value the employee creates for the company and calculate the “delta.” For example, if an employee increases the value of the business by 15 percent, the delta is 115 percent minus 100 percent divided by 115 percent or about 13 percent. If you pay the employee $100,000 a year, you charge staff expenses at 150% of the salary to include overhead and margin or $150,000. If the company is worth $4 million, it is 3.75 per cent. The difference between 13 per cent and 3.75 per cent is a stock offer of 9.25 per cent. A piece of action (i.e. capital) for all the work you put into the business is a good idea, especially for a startup that seems to be on the path to big profits. But before you sign, check your contract and see how it is compared to others. If you need help with a stock exchange or if you want to speak to a qualified lawyer in this area, you can publish your legal needs in the UpCounsel marketplace. UpCounsel only accepts the highest 5 percent of lawyers on its website. UpCounsel`s lawyers come from law schools such as Harvard Law and Yale Law and on average 14 years of legal experience, including working with or on behalf of companies such as Google, Menlo Ventures and Airbnb.
Another important advantage of the use of capital compensation agreements is the commitment that these agreements generate. If you take someone against a part of the business on board, that employee essentially becomes the owner. However, the allocation of equity to employees may raise a number of issues, including legal, tax, operational and contractual consequences for both the employer and the worker. To allocate equity in the form of stock options, you need to start with a stock options plan. This plan outlined the price of stocks, often referred to as subsidized prices, as well as the period during which workers can exercise their options. This period is defined by a block date (to learn more in the next chapter) and an expiration date. A staff member cannot exercise his options before the expiry date or after the expiry date. Stock-based compensation can therefore be a win-win situation for employers and employees, as all benefit from the company`s success.