Critical Issues
Before implementing any equity compensation plan, several questions need to be considered. The answers will become a thoughtful rationale for the design of an equity-sharing program. Questions that need to be answered include the following:
- Who will participate in the ownership plan?
- How much ownership should they receive?
- How will securities laws affect the design of the plan?
- How will the stock be valued?
- How will employees obtain liquidity for their shares?
- How will the plan affect the company's financials and cash flow?
These and other issues will be examined in the following sections:
 Owner's Concerns
Sharing ownership with employees is a difficult decision for many owners. Considerations such as participation, allocation, timing, control, and financial disclosure must be carefully evaluated before implementing an employee ownership plan.
Valuation
Everyone involved in an employee stock program, from founding owners to participating employees, will want to know just what the company's stock is worth and how the value is determined. There are many approaches that can be used to answer these questions
Securities Laws
Companies issuing securities must comply with both federal and state securities laws. At the federal level, the Securities and Exchange Commission (SEC) regulates the issuance and trading of securities. In addition, most states have their own securities laws, sometimes called "Blue Sky" laws, which differ from federal law and from one state to another.
Liquidity
An essential part of any employee stock ownership program is the ability of employee shareholders to obtain cash for their equity. A company establishing an employee equity program has to consider how to create liquidity for employee shareholders.
Administration
Plan administration is an important responsibility once the plan is implemented. The policies and procedures of stock plan administration vary from company to company, depending upon, among other things, the company's culture and the size and scope of the stock plan.
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