Incentive Plans - When to Adopt One?

Evan M. Schendler, Associate at Yigal Arnon & Co. | Reading Time: 2 min.
By way of introduction, this blog will feature a series of posts about incentive plans in Israel. Since in Israel, the most popular form of incentive awards are options, you may hear the terms “option plans” and “incentive plans” used interchangeably. However, I will start with option awards and eventually discuss other awards such as RSUs (shares are issued when the vesting date arises) or restricted shares (shares are all issued upon grant but subject to a right of repurchase, i.e., reverse vesting) as such awards are becoming more common in the global arena.

Incentive plans are so critical today especially in the startup world where a company may not have much cash to pay to employees or consultants and instead can entice them with incentive awards. These employees/consultants know that if they work hard and the company is ultimately very successful (e.g., exit or IPO), they will reap the rewards of their hard work and loyalty to the company.

When to Adopt an Incentive/Option Plan

While there is no magic date as to when a company should adopt an incentive plan, the quicker a company does so, the quicker it can attain one of the main goals of adopting a plan: namely to align the interests of employees/consultants with that of the company. Practically, most companies wait until a few employees are hired and there are already a few promises of incentive grants before they adopt a plan. Often, an investor comes in and requests that a plan be adopted before it writes a check, for multiple reasons such as: 1) companies perceived as serious companies have incentive plans, and the investor wants to invest in a serious company; and 2) the investor would like a plan to be adopted with a requisite pool of shares to be reserved for grants under the plan either before or simultaneous with its investment in order to avoid immediate dilution by later incentive grants.

Evan’s practice focuses on the representation of technology companies, with a particular emphasis on employee incentive plans and labor law matters.
Evan graduated magna cum laude from Queens College in 1999 with a BA in Psychology, and received his Juris Doctor degree from New York University School of Law in 2003.
Evan was admitted to the Israel Bar in 2013 and was admitted to the New York Bar in 2004.

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