Understanding Equity Compensation
Your upcoming IPO should make employees feel excited, not unsure, so it’s crucial to take care of their equity compensation needs. If employees feel they are part of the company’s success story, the stock they own can serve as a powerful reminder of their commitment and contribution. It is key that employers focus on their employees and their equity compensation every step of the way as they go public.
Much depends on the administration provider you choose. The right one will be adept at establishing a plan for communicating with and educating employees. In this way, you equip your staff with the information they need to understand what’s happening and to act with confidence on their awards.
The IPO Readiness Team
To that end, consider creating an IPO readiness team composed of your administration provider and people inside your organization. This group might want to circulate an FAQ sheet regarding the IPO, but it also makes sense to designate a point person to whom employees can reach out if they have any additional questions.
The readiness team should ensure not only that your systems are IPO-ready, but your employees as well. Equity compensation can be complex and employees have a lot of questions. For example, employees will want to know whether they hold incentive stock options (ISO), non-qualified stock options (NSO), or restricted stock units (RSU). They’ll need to understand how these differ and how each one vests. They’ll also need straightforward information on what constitutes insider trading and what they’re allowed to reveal publicly. And they’ll need to learn how to get started with new equity plans, how to stay on track and when to take action.
Finally, a resource library where employees can easily access all of the equity compensation education information they need is a helpful tool as well.
The Implications of Sudden Wealth
Keep in mind that the sudden wealth employees frequently experience from an IPO can be overwhelming if they aren’t equipped with appropriate guidance on estate planning, tax management, and other such issues. Your communication plan and employees services can play a major role in helping them get a clear and nuanced picture of what they can expect and how best to handle the wealth resulting from the IPO. That includes understanding how to incorporate their newfound wealth into their overall financial plan—a task that shouldn’t be underestimated.
All these considerations call for the guidance of an experienced provider. The right one will have a deep understanding of employee equity plans, as well as experience in managing the lock-up period. For example, it takes a specialist steeped in the subject to help executives parse the complexities of Rule 144 and understand issues associated with selling unregistered securities. An advisor can also help by sharing insights about alternative minimum tax (AMT) requirements, other tax issues, charitable giving, and overall financial planning.
Protecting Hard-Earned Compensation
Employees will want to protect the great windfalls some IPOs generate. They should be made aware that the lock-up period, which typically lasts six months, can be a roller coaster ride. A well-thought-out plan beforehand that spells out what they will do with their vested shares and when can help them through this exciting period.
You owe it to your employees to make the road to going public a smooth one. Equity professionals will find a helpful roadmap for navigating every step of their IPO journey in IPO: To, Through and Beyond, A Roadmap for Equity Professionals, a Thought Leadership piece from Fidelity.
“IPO Journey: First Steps to Going Public” is reprinted from NASDAQ IPO Playbook, October 2021, as part of a paid advertisement by Fidelity Stock Plan Services, LLC. The statements and opinions expressed in this article are based on insights provided by Fidelity but modified by the author, Rosa Harris, Media Analytics Group. Fidelity Stock Plan Services, LLC cannot guarantee the accuracy or completeness of those modifications.
Information is provided for educational purposes only. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry, strategy or security mentioned herein and nothing contained herein should be construed as legal or . Nasdaq does not recommend or endorse any securities offering; you are urged to read a company’s SEC filings, undertake your own due diligence and carefully evaluate any companies before investing. ASSISTANCE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
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