Are Your Stock Plans IPO Ready? 5 Things to Consider

For many startups, going public has been a key milestone since day one. But knowing when the company is ready to take that step is not the only thing that can be challenging. Are your stock plans ready for IPO? From regulatory compliance to compensation philosophy, there’s a broad spectrum of logistics to work through — so the right planning is crucial.

For compensation leaders weighing whether they’re ready to tackle the IPO process, here are five considerations to keep in mind.

1. What Will Your Post-IPO Compensation Philosophy Be?

Establishing what your compensation philosophy will be after the IPO is a good place to start. It helps create a better understanding of post-IPO plans as well as the company’s rationale for the decision.

“This will help clarify the role the equity compensation will play after the IPO in attracting and retaining talent to achieve business objectives,” said Emily Cervino, head of industry relationships and thought leadership at Fidelity.

2. Who Is On Your Compensation Team?

While individuals may wear multiple hats in startups, your compensation strategy should not be a one-person operation. Build a team with solid representation from human resources, finance and legal departments.

Also keep in mind that the company may benefit from external help with compensation consulting, design, valuation and tax expertise. Lean on providers and advisors with solid experience helping companies in the private-to-public process. If the company's plan includes non-US employees, global expertise may be required.

3. How Will You Approach Planning?

While companies can add or modify compensation plans after an IPO, doing so before can be significantly easier. Stock plans require shareholder approval, and obtaining that approval is easier as a private company when you have fewer shareholders. This is likely the company's only opportunity to add an evergreen provision, which is an automatic annual replenishment of the share pool for 10 years. Shareholders of public companies typically vote against evergreen provisions.

During the planning process, compensation professionals should aim to move beyond near- term thinking. Companies should think big and focus on flexibility and scale so the IPO equity compensation plans can grow with the company.

4. What Will Your Processes Be?

So much changes for a company after it goes public. One major impact on compensation professionals is that transaction volumes can skyrocket after IPO. Prepare in advance to have the right processes and providers in place to support this increase.

5. How Will You Plan for Your People?

The people supporting the company's compensation plans as well as those receiving grants under the plans will require some support.

Recruit experienced professionals to support your public company plans, both internally and externally — and make sure they have access to the resources they need to manage those plans.

Employees, of course, are central to a successful equity compensation plan. Before and after a company goes public, employees will undoubtedly have questions about their equity plans. For many employees, it could be the first time they experience the wealth creation that may come with an IPO. Work with an experienced provider to help communicate with employees about exercising stock options, trading windows and lock-up periods.

“Knowing what you don’t know can be a big challenge!” Cervino said. “Try not to be limited by near-term thinking. Think big, and keep a focus on flexibility and scale.”

 

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. Fidelity Stock Plan Services, LLC cannot guarantee the accuracy or completeness of those modifications.

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