stock options can act as golden handcuffs and why so many companies utilize them as a retention toolAs an executive recruiter, you may often encounter a promising candidate who is reluctant to leave his or her current position because of vested stock options — even though the candidate may feel that your client’s job may have better potential. This psychological reluctance is the fundamental logic behind how stock options can act as golden handcuffs and why so many companies utilize them as a retention tool. The Employee Stock Option Fund (ESO Fund) can help in those situations. ESO provides financingRead More
the holding requirement represents a period of illiquidity that can pose a significant financial burden to some employeesSEC Rule 144 governs the sale of restricted and control securities (here’s a hyperlink to the SEC document). If you work for a venture-backed startup company that has not yet gone public, you will be purchasing restricted stock when you exercise your stock options. If you are a founder, executive, or a board director, then your stock may be subject to additional restrictions as a control security. If you wish to sell your stock prior to the issuing company going public and theRead More
An ESO transaction can provide employees with discretionary cashVenture-backed startups rely heavily on employee stock options to attract and retain top talent. Stock options give the employees a piece of the company’s upside, letting them benefit with the company’s success. However, the current environment for IPOs often makes for a very long time horizon to achieve liquidity and has given rise to secondary markets for private company stock. Rather than having your employees distracted by searching for buyers of their shares and sharing confidential information with strangers, private companies should consider a private liquidity program. In a company sponsored liquidityRead More
the seller receives the purchase price so there is no opportunity for continuing gainStock in venture backed private companies is generally illiquid. In other words, there is a limited market for the stock since it is not freely transferable or publicly traded. Owners of common stock in private companies such as founders, employees, consultants, and others who wanted to obtain cash for their stock have traditionally either had to wait for a company liquidity event (for example, a sale or IPO of the company) or sell the shares on the secondary market. The problem with waiting for a liquidity eventRead More
Unvested assets don’t have to be recognized as income as a safety measure for you. Venture-backed startup companies are big fans of using stock options as a major compensation tool to attract and retain employees. If your company’s stock value rises over the years, you can avoid two major tax issues by having exercised early. However, since you haven’t actually vested your stock and assuming your company even has an early exercise option, you would technically be holding restricted stock that is subject to repurchase by the company. The IRS allows that unvested assets don’t have to be recognized asRead More
We have temporarily closed our physical office due to COVID-19; however, our team will be operating remotely to process all option exercise and liquidity requests.