Equity compensation is often a significant portion of the total compensation paid to employees and other service providers. A company can use an equity incentive plan to:

Private companies must compete with public companies to attract and retain talent. Private companies often find this difficult because private company equity holders generally have very limited liquidity. Not only is private company stock not listed on a stock exchange, it is also generally subject to various restrictions. By contrast, public companies typically offer significant equity compensation to their executives, and equity holders can readily trade their stock through the public market exchanges.

Private companies competing for talent must carefully balance the need to provide some form of long-term equity compensation with the desire to maintain control. Private company equity incentive plans generally provide for certain rights that make it easier for majority shareholders to sell the company. These rights may be included in the applicable award agreement or the shareholders' agreement and all documents must be appropriately coordinated.

This Toolkit includes continuously maintained resources to assist a private company in designing, drafting, and maintaining an equity incentive plan. In addition to sample plans and agreements, it includes resources describing the various types of equity compensation, including advantages and disadvantages of different award types, and tax and securities law considerations.

For resources on public company equity compensation, see Equity Incentive Plan (Public Company) Toolkit.

For resources on partnership equity compensation, see Partnership Equity Compensation Toolkit.

For resources on director equity compensation, see Director Compensation Toolkit.

For resources on private equity portfolio company management compensation, see Private Equity Portfolio Company Management Compensation Toolkit.