(Photo: Elisa.rolle, via Wikimedia Commons)
It’s not easy to attract marquee names to your fledgling startup company. But Margaret Siegel of Foley & Lardner says companies that eventually want rock star top talent must think through the corporate stock structure and plan for their recruitment from day one. But she also cautions that equity compensation—without context—for superstar players is a superbad idea. Instead, she says to take these steps:
“While it can be set up later, sure, creating an option pool from the outset will help your attorneys better advise you on how to structure your company’s capitalization table,” explains Siegel, who notes that if you know granting equity is something that’s going to happen, set it up from the day you incorporate.
Make the Numbers Pop
Start high, says Siegel, when determining the total number of shares in the company. Aside from lower legal fees and the simplicity of never having to split stock, she says the optics are simply better when granting large numbers of shares to employees. “An equity grant of 15 shares (with 1,000 total shares authorized, for example) simply doesn’t look as good as an offer of 150,000 shares (with 10,000,000 total shares authorized),” she says. Go big, or go home.
Figure Out the Market
Take some time and do some research about what is “market” for equity. “If you start with a basic framework for grants, not only will you be able to ensure that equity grants to current employees are fair, but you will also be able to give valuable context to new recipients when making an offer,” says Siegel.