By: Book+Street, a Clarus R+D Partner

Creating a Plan for Equity-Based Compensation

Partners | February 11, 2020 | 2 min read

Whether you just founded your business, or you’re a growth-stage startup, chances are you’ve considered offering equity as a form of compensation to your team. But do you know when, why, or even how to offer equity compensation to your people? Let’s dig in to find out.

Ultimately, if you’re thinking about creating an equity-based compensation plan to motivate your employees and grow your company’s worth, it’s important to understand your how and why.

What is Equity-Based Compensation?
By definition, “equity-based compensation” includes any compensation paid to an employee, director, or independent contractor that is based on the value of specified stock (generally, the stock of the employer, which may be a corporation or a partnership).

Examples of equity-based compensation include:

  • Stock options
  • Restricted stock
  • Restricted stock units
  • Phantom stock plans
  • Stock appreciation rights
  • Other awards whose value is based on the value of specified stock

Equity-based compensation is an important and valuable part of a total compensation package. Yet, few employees fully understand what they’re getting, why it’s valuable, or what to do with it. Companies, on the other hand, want to offer it to entice or retain talent, but rarely understand the full implications and complexities of offering this type of compensation.

You might commonly know them as “stock options,” but equity-based compensation is an investment opportunity that gives the holder the ability to buy a certain amount of shares of company stock at a locked-in price. When they exercise stock options, they buy shares of stock at the locked-in price.

Most Common Types of Equity-Based Compensation

Although there are many types of equity-based compensation, the two most common types are

  • Stock options – the right to buy common stock
  • Restricted stock – a direct award of stock

Although both have value to the recipient, they are very different — especially when it comes to how they’re taxed (i.e., at award or once vested). It can get complicated quite quickly.

Why offer Equity-Based Compensation?

Early on, many companies build equity-based compensation plans in order to offset the cost of compensating employees with cash. They want to entice and retain good employees who will grow the value of the company over time. Building equity compensation into overall compensation packages gives your employees a vested interest in creating success for the company and often encourages them to stay throughout the period their stock options vest. Typically, they’ll need to stay with the company for a period of time (often four years) before they earn the right to buy their shares. Because employees receive the right to purchase more stock for every month or year they’re at the company, they’re inherently motivated to stay longer than they might have if they didn’t stand to receive stock options.

The key is designing the plan before you pull the trigger on issuing any awards.

When Is the Right Time to Offer Equity-Based Compensation?

Although there is no right or wrong time to consider implementing an equity-based compensation plan, we see it most commonly in the early stages of startups because it’s a good way to augment cash compensation. Beyond founders’ stock, which is typically issued to the original founders of the company, we see three common cases for equity-based compensation.

  • When making the first hire after initial founders
  • When making technical hires
  • When bringing on key strategic advisors and industry board members

These are all good times to offer equity-based compensation because they’re not only valuable to employees and key stakeholders, but they serve as great motivators to encourage them to work hard and build the company’s value. They can reap the reward of growth in the share price along with the founders and investors.

The key is designing the plan before you pull the trigger on issuing any awards. You’ll need a plan before making promises. At the very least, the document should include a strategy for who will receive awards, when the awards will be given, and how much each participant will receive.

Ultimately, if you’re thinking about creating an equity-based compensation plan to motivate your employees and grow your company’s worth, it’s important to understand your how and why. Setting up your plan correctly from the beginning will save you time, money, and headaches along the way.

We could talk about this all day, so let’s say we’ll share more down the line, shall we? In the meantime, if you have questions, reach out to us. We specialize in early-stage startups and can help you design a stock options plan that works for you and your business.

Reach out to Book+Street

Book+Street provides strategic financial and tactical finance and accounting services to enhance your current team and support strategic initiatives.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Acuity, a Clarus R+D Partner

5 Tips For Growing Your Small Business

Partners | December 5, 2019 | 2 min read

Did you know that less than one-third of small businesses ever make it to phase two of their life cycle? On paper, those can be pretty sobering numbers, but here’s the good news. There are very specific reasons why so many small businesses fail — and we’ve got the advice you need to avoid the most common pitfalls. Ready to prepare yourself for expansion? Arm yourself with these expert tips.

1. Be consistent, and don’t micromanage.

As you grow, your business will change. The one thing that should always stay the same, however, is your quality. By building on a strong foundation of service, you’re creating an unwavering precedent that you can build your next steps on. Just be mindful of being a control freak — if you’re delegating tasks correctly, and trusting your team, your employees will be empowered to continue your legacy of quality throughout their workflow.

2. Never stop improving.

At no point will you have learned everything, so keep the communication channels open (especially with your employees and clients) to ensure your business keeps evolving. If you’re dealing with a problem, a lot of times the solution is within your very own team. And if you ask how things can get better, your employees are going to love the opportunity to provide the feedback you need.

3. Find mentors that have been in your shoes.

Every saga needs a Gandalf — someone who will guide the hero through their journey. For your entrepreneurial adventure, you need the same thing: a person to bounce ideas off of, to push you to meet your challenges head-on, and someone who can give honest feedback when you need it most. So find advisors you can trust, who will hold you accountable, and most importantly, keep you in check as you navigate your business. The extra hand will be invaluable.

4. Take care of your money.

There’s nothing worse than a new company that doesn’t keep records of their cash flow — in fact, it’s one of the main reasons small businesses fail. Apart from not knowing your own account balance, being behind on your books can create a lot of other problems: overdue bills, tax audits, overdrawn accounts, and more. A bookkeeper may seem non-essential when you’re running a tight ship, but we think there are a lot of benefits to having a bookkeeper for your small business. More than anything, it will give you peace of mind of knowing the accounts are taken care of.

5. Learn how to accept setbacks.

We’ve all heard it: Failure is a great teacher. But what does that mean for your small business? It means it’s really okay to experience setbacks, and that businesses who do it often are some of the healthiest out there. Giving yourself the freedom to screw up from time to time will also open up the gates of inspiration and innovation, and help take your strategies to the next level. And every company can benefit from that!

Your small business is in a good place. After all, you’ve got it started in the right direction. With these tips — and a little TLC — you can be prepared for whatever is next.

Read original Acuity article

Acuity offers outsourced bookkeeping, tax, accounting, and CFO services for small businesses.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Preferred Return, a Clarus R+D Partner

What is a 409A Valuation Report?

Partners | April 19, 2019 | 1 min read
What is a 409A Valuation Report?

When you issue stock options, you might unknowingly be exposing your employees to substantial tax liabilities. To protect them (and your company) against audits, you need a reliable 409A valuation to comply with the law.

Get answers to these important questions and more.

  • What is a 409A valuation, and where do 409A rules come from?
  • Why am I required to do a 409A valuation? Do I actually need one? Can’t I just use a rule of thumb?
  • What happens if I don’t get a a 409A and just wing it?
  • When do I need a 409A?
  • Why would my 409A valuation be different than my pre-money-valuation or post-money-valuation?
  • How long is the 409A good for? Can I just get one report and be done?
  • How long does it take and how much does it cost?
  • How do you figure out the value of private stock?
  • What data do I need to provide to get a 409A?

Read full article by Preferred Return

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: TriNet, a Clarus R+D partner

What Innovators Really Want

Partners | March 6, 2019 | 1 min read

How important are benefits to attracting and keeping the talent your business needs to thrive? In a word: very. Both traditional and non-traditional benefits are critical in establishing value with job candidates and employees.

Traditional benefits include health coverage, life insurance, disability coverage, and retirement plans. Non-traditional benefits include perks such as flexible work schedules, pet insurance, training and mentoring.

A comprehensive benefits plan brings far more than its monetary value. Our partners at TriNet recently conducted a survey which found that 91% of respondents at small and medium size businesses view non-traditional benefits as an important aspect of their job satisfaction. Most respondents said that providing non-traditional benefits improves employee morale, employee retention, and company culture.

91% of respondents view non-traditional benefits as an important aspect of their job satisfaction.

Employers can help keep valuable institutional knowledge from walking out the door by making sure that all employees have what they need to succeed. Whether it’s training and advancement or benefits and flexible work arrangements, employers can draw from a host of options to make their workplace nothing short of incredible.

Catherine Wragg, senior vice president of Human Resources at TriNet explains the importance of non-traditional benefits: “With low unemployment and more jobs available than job seekers, it is an important time for companies to re-evaluate their incentive and benefit offerings to recruit and retain employees. Non-traditional benefits can help employers stand out by offering uncommon perks that can be meaningful to employees, positively impact company culture and potentially help retain top talent.”

Determining which benefits to offer can be complicated. Based on their findings, TriNet has provided an eGuide overview of the types of traditional and non-traditional benefits you might consider offering.

TriNet eGuide: What Workers Really Want


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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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