HUMAN RESOURCES

Equity as Compensation

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Think of equity as a new American currency. Employees today frequently expect stock options as part of their compensation mix, and service providers often take equity stakes in promising start-ups as part of their fee.

But both taking and giving equity are risky and complex propositions. In his article How to Take Stock in the November 2000 issue of Inc. magazine, Ilan Mochari shares the story of Robyn Sachs, who knows about the risk involved with taking equity for services. Sachs's PR firm, RMR and Associates, received equity for services, only to see the value of its shares plummet along with the stock market. On the flip side, The Takeover, a story from the Inc. magazine archives, highlights some of the potential pitfalls of giving equity as compensation.

Given the risks involved, how does a business owner give or take equity wisely? This guide uncovers inc.com's best resources on this complex subject.

Put It in Writing

If you're sealing your deals with a handshake, beware. When it comes to handing out equity, putting the details in writing is always your best bet.

Granting Options Like It's 1999
New rules do little to dampen private companies' use of stock options.
Valuing Private Company Stock
How many shares should you issue? How do you price them? It all depends on what you're up to.
Avoid Being Stuck by Stock
Giving equity can be a great way for small, growing companies to recruit and keep talented workers. But if you grant stock, without writing sound shareholder agreements, you could be setting yourself up for trouble.
Hot Tip: Stock Options
Worried that employees will use the proceeds from their equity stakes in your business to start their own businesses? Here's one entrepreneur's approach.

Equity as Compensation for Service Providers

Before you take part of your fee in equity -- or offer equity in lieu of cash to a service provider -- make sure the deal makes sense for your company.

How to Get Rich in America
By receiving equity as compensation from clients, Lunar Design gained equity stakes in companies that it hopes will be worth much more than a straight fee-for-service payment in the long run.
Risky Business
When does it make sense for a company to begin thinking about swapping work for equity? A Wharton professor addresses the pros and cons of deals that involve taking equity as part of a fee.
How do I structure a work-for-equity deal?
Law & Taxation mentor Chip Morse discusses questions to consider when compensating an adviser with equity.

Equity as Compensation for Employees

Read on to discover strategies for giving equity -- or equity-like -- compensation to employees.

The Ultimate Employee Buy-in
Sell the company to your employees? It's a great idea--both for you and for the business you're leaving behind.
In Search of Equity
Microsoft made millionaires out of many employees. But the same stock options that inspire loyalty can encourage the opposite behavior. Inc. senior writer Edward O. Welles reflects on the equity phenomenon.
Phantom Stock
John Lucey faced a challenge that's a perennial quandary among owners of family businesses and other closely held companies: How to compensate and motivate nonfamily managers without granting them equity. His solution? Phantom stock.
Know Your Options
In a private company, there's more than one way to structure a stock option plan, according to Inc.'s Jill Andresky Fraser.
Last updated: Oct 19, 2000




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