Equity compensation plans may alleviate concerns that closely held business owners have during transition planning. These plans do not involve direct sales of business ownership, but they aid succession planning by reducing business value through additional compensation to key executives. In addition, by aligning the compensation to the value of the company’s equity, rather than to a fixed dollar amount, these plans may provide additional motivation to executives to grow the business.
The plans may include actual ownership or payments tied to equity value that do not provide real ownership. In addition, plans can be structured to involve employee investment or to be funded completely by the company. This article takes a closer look at different types of equity compensation and additional considerations of which closely held business owners should be aware.