FFor many startups, going public has been a key milestone since day one. But knowing when the company is ready to take that step isn’t the only thing that can be difficult. Are your stock plans ready for the IPO? From regulatory compliance to compensation philosophy, there is a wide range of logistics to manage. Good planning is therefore crucial.
For compensation executives wondering if they’re ready to tackle the IPO process, here are five considerations to keep in mind.
1. What will your compensation philosophy be after the IPO?
Establishing what your post-IPO compensation philosophy will be is a good place to start. This helps create a better understanding of the post-IPO plans as well as the rationale for the company’s decision.
“This will help clarify the role equity compensation will play post-IPO in attracting and retaining talent to achieve business goals,” said Emily Cervino, Head of Industry Relations and Thought Leadership. at Fidelity.
2. Who is on your compensation team?
While individuals can wear many hats in startups, your compensation strategy shouldn’t be a one-person operation. Build a team with strong representation from human resources, finance and legal.
Also keep in mind that the business may benefit from outside help with compensation consulting, design, valuation and tax expertise. Rely on suppliers and advisors with solid experience in supporting companies in the process of transition from private to public. If the company’s plan includes non-US employees, global expertise may be required.
3. How will you approach planning?
Although companies can add or change compensation plans after an IPO, it can be much easier to do so before. Stock plans require shareholder approval, and getting that approval is easier as a private company when you have fewer shareholders. This is probably the only opportunity for the company to add a permanent provision, which is an automatic annual replenishment of the stock pool for 10 years. Shareholders of public companies generally vote against rolling provisions.
During the planning process, compensation professionals should aim to move beyond short-term thinking. Companies need to think big and focus on flexibility and scale so that IPO equity compensation plans can scale with the business.
4. What will your processes be?
So many changes for a company after its IPO. A major impact on compensation professionals is that trading volumes can skyrocket after the IPO. Prepare ahead of time to have the right processes and vendors in place to support this increase.
5. How will you plan for your staff?
People who support the company’s compensation plans as well as those who receive subsidies under the plans will need some support.
Recruit experienced professionals to support your public company plans, both internally and externally, and ensure they have access to the resources they need to manage those plans.
Employees, of course, are at the heart of a successful equity compensation plan. Before and after a company’s IPO, employees will undoubtedly have questions about their stock ownership plans. For many employees, this could be the first time they experience the wealth creation that can come from an IPO. Work with an experienced vendor to help communicate with employees about stock option exercise, trading windows and lock-up periods.
“Knowing what you don’t know can be a big challenge!” said Matterhorn. “Try not to be limited by short-term thinking. Think big and focus on flexibility and scalability.
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