Issuing stock options can be a powerful incentive to motivate employees in a way that base compensation plans cannot. To be clear, stock options are not a substitute for excellent leadership, but they are a tool in the leader's toolkit.
This is a written document that outlines the terms and conditions of the options offered to employees. You can put the initial effort into writing this document, however, you should ultimately have it reviewed and approved by your legal counsel as well as your tax advisors.
Review your corporate by-laws, articles and resolutions to determine the best method to obtain shareholder approval. Your legal counsel and CPA can help you ensure that any special meeting has the appropriate agenda and resolutions to be voted upon.
Consider the financial impact of issuing options, as well as your company's overall goals and growth plans. The larger your team, the more options you may need to issue. Assess the value of the options relative to other forms of compensation, such as salaries and bonuses. Decide whether the options are intended to incentivize employees, attract new talent, or reward performance.
This is the price at which employees can purchase the company's stock and needs to be well thought out. It also has tax implications so ensure you have it reviewed by your tax advisor. The exercise price should be set at the fair market value of the company's stock at the time the options are issued. Determine the overall state of the company valuations and the potential for growth or decline in the value of the options. The exercise price should also be set at a level that is attainable for employees and provides adequate motivation.
This is the length of time that an employee must work for the company before they can exercise the options. Vesting determinations need to account for labour market conditions and the expectations of your team. It should also be internally consistent with your employee development, turnover and role vacancy expectations.
These should be signed by each employee who is receiving options and outline the terms and conditions of the options. Ensure your legal counsel has approved the documents before you start getting sign-offs. The grant of options should clearly state the number of options being granted, the exercise price, the expiration date, and any vesting requirements. The exercise price should be set at the fair market value of the company's stock at the time the options are granted. The vesting period should be defined and specify when the options become exercisable by the employee. The conditions for exercise, including the method of exercise, should be clearly defined. The agreement should specify whether the options are transferable and, if so, under what circumstances. The agreement should specify the consequences of termination of employment, including whether options will be forfeited or may be exercised. The agreement should specify the consequences of a change of control, such as a merger or acquisition. The agreement should ensure compliance with all relevant securities laws, including those of Ontario and Canada.
Stock options may be taxed as a taxable benefit, so ensure that you comply with all relevant tax regulations.
Note that stock options are complex plans and you should not go it alone. You'll need capable legal and financial advisors to help you remain onside of employment, securities and tax laws.
If you're considering an aggressive business growth strategy, options may be a fit for you and we can help you as your fractional CFO.
Rebecca is a Web Designer at BluePrint CPAs. She is a graduate of St. Clair College’s Internet Applications and Web Development Program and has worked as a freelance web designer before joining the BluePrint team.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
Kit Moore, is an entrepreneur that simplifies digital strategy for other business owners. The team at BluePrint CPAs can assist you with web design, development, analytics, management systems and, more importantly, your overall business strategy. The toughest part of digital transformation is re-training your team - and we have pros to help with that as well.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
Kit Moore, is an entrepreneur that simplifies tax and financial strategy for other business owners. The team at BluePrint CPAs can assist you with financial technology, tax strategies, mergers & acquisitions, succession & exit planning and, more importantly, your overall business strategy.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
Joe is a Senior Associate, Strategy Consulting at BluePrint CPAs. He is a recent graduate of the MBA Program at the Schulich School of Business and has most recently worked for Bayer Inc and the Ford Motor Company of Canada. His experience in marketing, sales, and human resources spans various industries including hospitality, logistics, life sciences and automotive manufacturing. Joe loves working with entrepreneurs to develop their digital strategies and help them grow their business.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
