Private Company Stock Options vs Private Company Stock

Stock Incentive Plans: Retain and Attract Employees

As a business owner, attracting the right talent and keeping your workforce engaged and happy is key to success. One of the most effective ways to achieve this is to provide benefits, from insurance options to retirement plans. However, the best way to align employee interests with the company’s is to offer a stock incentive plan by offering private company stock. After all, your unique approach to employee ownership can be the difference between gaining a prospective employee’s interest, or not. There are many ways to go about sharing equity with employees, but the two most commonly used plans are private company stock options and private company stock. While they achieve a similar outcome, they’re two vastly different concepts, and it’s important to understand what the difference is. This is true for both employers and employees. Having basic knowledge on the differences between private company stock options and private company stock can assist potential employees in choosing whether they want to work for your company and what you can provide for them.

Private Company Stock Options

So, what is the difference between private company stock options and private company stock? Let’s start with private company stock options. Private company stock options allow companies to defer their payment to employees by giving them the “option” to buy a given number of shares at a predetermined price at a future date. They’re not reported as wages, and therefore are generally more tax-efficient for the employer. However, it comes at a cost. Employees must purchase their shares, and if the stock price hasn’t risen since the options were awarded, it doesn’t make sense for the employee to purchase them at all. Private company stock options come with strings attached, and employees know it. In fact, experienced employees will tell you that they heavily discount the sticker price of their private company stock options.

Private Company Stock

Conversely, by offering private company stock, an employee receives immediate ownership. These grants are applied as a part of an employee’s wages, which is ultimately how they prove to be tremendously valuable. Because they don’t require employees to buy the underlying stock at a later date, their value can be much more easily determined. This is a highly attractive feature to many since selling private company stock in a situation where they might really need the money is now an option for them. In today’s fast-paced society, immediacy is important, and employees value the fact that they can become part-owners in their company without needing to purchase it outright. As soon as they receive their stock, they can call themselves part owners.

Private Company Stock Options – Vesting Schedules

It’s worth mentioning that, both private company stock options and private company stock tend to rely on vesting schedules to encourage employees to stick with the company in the long run. Generally, they’re awarded on an annual basis, with the first vesting date being at the one-year anniversary. These can be highly customized to suit the needs of the business.

How to Share Ownership Using Private company stock

The most substantial benefit to offering an equity incentive plan is that it allows your company to share ownership with your employees, which is advantageous for both parties and fosters a culture of partnership. With this shared ownership, you’ll be able to meet the interests of your employees, which is an excellent way to avoid much-dreaded turnover. Making employees true owners of their company through the means of a stock incentive plan can positively impact their work ethic and overall happiness.

Selling Private Company Stock

Offering equity within your company is undoubtedly an alluring incentive. Your employees will appreciate the flexibility to buy and sell their equity when needed. Equity can be used for a myriad of purposes, from emergency expenses to important milestones. Imagine offering your employees the chance to buy and sell their equity. Selling private company stock can allow them to send their children to college, pay for a medical procedure, or even to go on their dream vacation. Stock incentive plans are an excellent resource for both you and your employees, making it a great addition to your company.