Ready, Set, IPO: The IPO Equity Compensation Checklist

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A firm’s success is determined by its individuals — particularly when it is transitioning from personal to public. As a part of the IPO course of, many startups use equity compensation as one approach to entice and retain early expertise. But it’s essential to create a complete, detailed plan masking every part from regulatory compliance and worker communications to make sure your equity compensation plans are able to get you to, via, and past IPO.

Long earlier than IPO, corporations must take a list of what stock plans they’ve in place, what adjustments they could must make to current plans and what new plans they wish to have in place to be used as a public firm, mentioned Emily Cervino, head of business relationships and thought management at Fidelity.

For enterprise leaders beginning on that path, right here’s a guidelines and timeline of what to contemplate when making a compensation technique.

18 Months to IPO: Compensation Philosophy and Peer Group Selection

Start with a compensation philosophy, which is a proper doc outlining a framework and rationale for worker compensation. Keep these concerns in thoughts:

  • If an equity philosophy doesn’t exist, work with the compensation committee, govt group and outdoors counsel to ascertain a plan for granting equity-based awards.

  • Provide flexibility with respect to award sorts, taxation and defining the eligible inhabitants. “Flexibility is key,” Cervino mentioned. Just as a result of the plan permits one thing doesn’t imply an organization should do it.

  • Establish processes to make sure that the correct necessities, documentation, and approvals are in place for particular person equity grants.

During this stage, firm leaders must also set up a peer group of publicly traded corporations to know the aggressive panorama.

  • Target 15-20 corporations — contemplating elements similar to business, income, market capitalization, profitability, threat profile, debt leverage and time since IPO.

  • Understand typical pay combine by degree in related sectors.

  • Assess how broadly equity could also be utilized by publicly traded friends.

15 Months to IPO: Executive Compensation

At this stage, assess equity grants for executives and guarantee they’re acceptable. Use the next method as a place to begin:

  • Establish equity design and eligibility for post-IPO grants

  • Understand how the IPO will have an effect on present employment agreements. Verify that employment agreements don’t create obstacles with change-in-control or acceleration funds as the corporate goes public.

  • Create a framework for the way board members can be compensated, together with equity, usually within the type of time-based RSUs.

12-18 Months to IPO: Administration and Employee Services

Ensure you’ve got a strong system to report and monitor grants, retaining regulatory compliance in thoughts. The system ought to embrace a big selection of capabilities — similar to monetary reporting options and worker companies.

6 Months to IPO: Prepare to Launch

As the massive day nears, it’s essential to ascertain processes to make sure entry to assets and assist worker communications and readiness. When working via these logistics, bear in mind key elements similar to payroll, taxation and monetary reporting.

3 Months to IPO: Focus on Employees

This is the house stretch. Now it’s time to create an IPO readiness group to assist workers perceive how the IPO course of will have an effect on their wealth and easy methods to incorporate it into their total monetary plan.

Beyond the IPO: Public Equity Plan Management

Once the corporate has gone public, it’s essential to do not forget that the wants and regulatory obligations are drastically completely different. Working with a provider who can advise and assist the corporate develop via the transition will be invaluable.

 

Paid commercial by Fidelity Stock Plan Services, LLC. The statements and opinions expressed on this article are primarily based on insights offered by Fidelity however modified by the creator, Rosa Harris, Media Analytics Group. Fidelity Stock Plan Services, LLC can not assure the accuracy or completeness of these modifications. Information is offered for academic functions solely.

Information is offered for academic functions solely. The content material doesn’t try to look at all of the info and circumstances which can be related to any explicit firm, business, technique or safety talked about herein and nothing contained herein needs to be construed as authorized or funding recommendation. Nasdaq doesn’t advocate or endorse any securities providing; you’re urged to learn an organization’s SEC filings, undertake your personal due diligence and thoroughly consider any corporations earlier than investing. ASSISTANCE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.



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