What is an Equity Incentive Plan?

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If you own a business you can encourage and reward the hard work of your employees with an Equity Incentive Plan, in the form of stocks. Offering stocks to employees can be an effective way to make them feel invested in the company. Typically, an Equity Incentive Plan is run by a "compensation committee" made up of members selected from your company's board of directors. An Equity Incentive Plan establishes how the committee will administer the payment of stocks, and sets clear guidelines for eligibility, restrictions, and additional controls to protect the business.

Use the Equity Incentive Plan document if:

You're about to offer company shares to your employees.
You need to re-work the details of your stock sharing program.

With an Equity Incentive Plan you can specify the type of employees eligible to receive incentive stock options; the minimum price per share of stock an employee must pay if they are granted the right to purchase stock (even though the employee owns more than the maximum percentage defined in the plan); the timeframe within which stock options can be granted under the plan after its adoption or approval by shareholders; the total number of shares to be issued to employees; and the conditions and time period for the expiration of stock options.

Looking for more information? Our Human Resources Guide can help you through the intricacies of hiring and managing employees.

Other names for this document: Incentive Stock Options (ISOs), Equity Incentive Program, Employee Equity Incentive Plan

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