First of all, several concepts:

1, option VS restricted equity VS benefit sharing

(1) option is the right of employees to buy the company's equity at a predetermined price if they meet the conditions in the future. Restricted equity refers to equity with limited rights. Similarities: from the final result, they are all linked to equity, which is a medium-and long-term incentive for employees; From the process, you can set rights restrictions, such as phased expiration, resignation repurchase and so on. Difference: The incentive object actually obtains the equity (that is, exercises the shareholders' rights) at different time nodes. For the restricted stock right, the incentive object obtains the stock right from the beginning, and as soon as it obtains the stock right, it begins to participate in the company's decision-making management and dividend distribution as a shareholder, and the incentive object will have a higher sense of participation and psychological security, which is mainly suitable for the partner team. For options, the time for the incentive object to obtain equity is post-position. Only when the agreed conditions, such as service period or performance indicators, are met, and the incentive object is optimistic about the company's prospects for a long time, will it begin to acquire equity and participate in the company's decision-making management and dividends. Before the option becomes equity, the sense of participation and psychological security of the incentive object is low. Equity incentive can also be a ritual, a process of activating the organizational cells of the company and loosening the responsibilities and obligations of the founders.

(2) Benefit sharing: there are mainly stock appreciation rights, virtual stocks, or direct salary bonuses. Benefit sharing is mainly short-term incentives.

2, the most prone to problems:

(1) the initial intention of equity incentive

Granting equity does not mean that you give it away casually. The key point is to give employees the rights and responsibilities to manage the enterprise through the process of granting equity and combining the company mechanism. This was shared by Xing Shanhu, CEO of "I am MT" company, when he gave the company equity incentives. The original intention of employee equity incentive is to motivate employees, so startup companies should first focus on this original intention when designing employee equity incentive schemes. Equity incentive documents will involve all aspects of rights restrictions on incentive objects, including phased arrangement of equity maturity and equity repurchase when leaving office. These institutional arrangements have their commercial rationality and also protect the interests of the company and the long-term entrepreneurial team. When the company's management team and founders design the employee equity incentive scheme, one of the most likely problems is that in the whole implementation process, it is easy to always stand on the company's side to protect the interests of the company and the entrepreneurial team, while ignoring the original intention of motivating employees.

(2) Poor communication

When the company carries out equity incentive, the employees of the company have always been in a weak position: from the perspective of participants, one of the users of this product is the company and the other is the employee; From the position point of view, employees and the company have an identity dependence relationship and are in a weak bargaining position; From the perspective of incentive process, employees basically do not participate in the formulation of game rules, and their sense of participation is weak. The legal documents themselves are professional and obscure, and the trading documents under the overseas framework are all English documents. The most common problem is that employees will have strict restrictions on the service time in the company when signing the option agreement. Employees don't understand the rationality, rationality and business logic behind these cold institutional arrangements, and employees are likely to regard equity incentives as a sales contract. In addition, if the company distributes shares by percentage, employees who get a few options will think that the company is too stingy. Why does my company have so few shares? Why do you want to sign such a complicated document? Don't you trust us? If communication is not in place, the employee's incentive experience will be extremely poor. The initial intention of equity incentive has decided that employees must be truly motivated. (3) How to communicate

Explain the logic of employee option: the logic of employee option is that employees buy shares of the company at a very low price, serve the company for a long time, and make the options in their hands appreciate. First of all, the price for employees to buy options is low: when the company issues options to employees, it sells shares to employees at a very low price at the time of company valuation, and employees have already made money by buying shares. In addition, employees' options are future income, and employees need to serve the company for a long time to realize the appreciation of equity. Therefore, the option agreement is not a sales contract, but an opportunity for employees to share the company's growth income. There are many questions about options employees, but they will repeatedly look for answers in their minds, but they will not openly ask the company questions: for example, how to get these shares, when and how to realize them. These problems need to be fully communicated with employees. Many employees will also ask why they have so few choices. The company needs a lot of people's efforts to do it, and it needs to reserve enough equity for employees who join later.

Second, the steps of employee stock option incentive will go through four steps: grant, expiration, exercise and realization. Grant, that is, the company signs an option agreement with employees, stipulating the basic conditions for employees to obtain options. Maturity means that after employees meet the agreed conditions, mainly the service period or work performance indicators, they can choose to pay the exercise right and convert the options into stocks. Exercise, that is, employees pay for options and complete the leap from options to stocks. Liquidation, that is, after employees acquire shares, they will participate in the company's growth income by selling them in the open market, or by participating in the price distribution of company mergers and acquisitions, or by distributing the company's dividends.

Third, the entry mechanism of employee equity incentive:

1, Timing: Some entrepreneurs, at the very early stage of the company, began to issue a large number of options, and even all of them held shares. Our suggestion is that for the core partner team of the company, after meeting the right person and going through the running-in period, they can start issuing equity. However, for employees who are not partners, the equity will be issued in advance. On the one hand, the cost of equity incentive is very high, and employees may not feel it if they give a single employee three or five points of equity. On the other hand, the incentive effect is very poor, and it may even be considered as drawing a pie, which has a negative incentive effect. Therefore, it is better for the company to issue options at a certain stage (such as angel round financing, or the company's income or profit reaches a certain index). The rhythm of issuing options: it is necessary to control the rhythm and progress of issuing options and reserve space for subsequent teams to issue options (for example, according to the calculation of issuing 4 batches before listing); Full shareholding can be the choice direction of enterprises, but it is best to solve the first echelon first, then the second echelon, and finally the GSP to solve the third echelon, forming a demonstration effect. This can not only achieve the incentive effect, but also control the incentive cost; Option incentive is a medium and long-term incentive. It is best to fall in love first, then get married and go through a running-in period with the company.

2. Participants in individual equity incentive include partners, middle and senior managers (VP, director, etc.). ), key employees and external consultants. Partners mainly take restricted stocks and do not participate in option allocation. However, if the capital contribution of the partner does not match the equity held by the partner, some options can also be issued to the partner to adjust the unreasonable distribution of the equity of the previous partner. Middle and senior managers are the main people who take options.

3. Quantification is the total amount of option pool on the one hand, and the amount of each person or position on the other. The option pool of the company is between 10-30%, and 15% is a median. The size of option pool needs to be set according to the company's situation. When determining the options specific to everyone, first consider the options given to people of different positions and levels, and then determine the options specific to individuals. When determining the position option amount, it can be allocated by department first, and then specific to the position. The total pool of the company is determined, and then considering his position, contribution, salary and company development stage, the number of incentive shares that employees should get is basically determined. The same level of technology acquisition, participation in entrepreneurship before VC comes in, joining the company after VC comes in, and joining the company on the eve of C round or even IPO, should be designed to be treated differently. In addition, the company can also give employees a choice, whether to take high salary+low option or low salary+high option. Founders usually prefer to choose low salary and high options. Shao Yibo shared the criteria for issuing options for the Yi Bei company he founded. For example, for VP-level managers, if they participate in entrepreneurship before angels come in, they will issue 2%-5% options; 1%-2% if it comes in after round A; 0.2%-0.5% will be paid if it comes in the C round or near the IPO. For core VP(CTO, CFO, CTO, etc. ), you can refer to the above standards and send it 2-3 times. Director-level personnel shall pay according to 1/2 or 1/3 of VP.