Has anyone used shares / share option plans as incentives for management?

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May 14, 2020

by a searcher from University of Stellenbosch in London, UK

Keen to learn about how people have used shares or share option plans to incentivize existing management teams? How do these shares / plans fit in to the cap table, how is this messaged to investors up front, how is the dilution effect handled etc.?

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Reply by a searcher
from Dartmouth College in Austin, TX, USA
Tim, I'm a big fan of aligning incentives between ownership and management as much as possible. One word of caution though from my prior experience at a larger PE firm: The uncertain timeline and value of any payoff from an options grant can limit the impact it has on motivating management. A CEO will likely share the vision and alignment, but even a CEO's direct reports may not put much weight on an uncertain payoff 5-8 years down the road. While appreciated, it likely won't drive daily behavior to the same extent as a more traditional annual bonus program.
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Reply by a searcher
from University of Stellenbosch in London, UK
Hi Eric, thanks for the steer. Makes a lot of sense to tie any benefits to direct impact of each employee. We will keep this in mind when setting up incentives. I think a bonus scheme connected to specific measurables is almost always the best way to go (provided measurement is possible and metrics don't distort behaviour). Thanks!
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