An incentive program is a form of compensation that a company can offer both managers and other employees. A well-structured incentive program creates long-term value for employees who contribute to the company for a long time. It also makes the company more attractive so that it becomes easier to attract the best talent. An employee incentive program can take many forms, as we will describe in this article.
Options usually have an vesting period, as well as an expiration date. The employee must exercise the option in the period between the vesting date and the expiration date. The option also has an exercise price (also often called a redemption price and strike), which is a pre-agreed price for which the shares can be purchased. It is usually a condition that the employee works in the company from the option is granted until an vesting date (vesting date) in order to have earned the right to the option. This means that the participant as a general rule does not lose the option if he / she quits after this. The employee can exercise this right from the time of vesting until the options expire
Simply put, this means that a company, in addition to salary and any bonus, offers employees to become owners of the company as part of the compensation. Share-based pay is one of the most common forms of financial incentives in business, but there are several different types of incentive programs and also large differences between them.
How an incentive program should be designed depends on what goals the company has and where it is in the development. The purpose of an incentive program is that it should function as an incentive for both the employee and the employer (the company and its owners) and motivate everyone to develop the company and take part in the company’s growth and success.
Incentive programs are used by all kinds of companies, everything from startup companies that want to attract talent but do not have the opportunity to offer a market salary, to large companies with thousands of employees.
Approximately two out of three companies on the Stockholm Stock Exchange offer incentive programs as part of the “compensation package” (2019). The most common variant is options (warrants and employee stock options), which make up about 60 percent of all incentive programs. An option is that the employee in the future may buy shares at a certain price agreed today, as an alternative to cash compensation.
In other articles, you can read more about the different benefits of incentive programs salary, what forms of incentive programs a company can offer, and what effects you should be aware of so that incentive programs become effective.
- Many companies offer incentive programs to managers and other employees as part of the compensation package.
- In an incentive program, the company’s shares (ownership) are used as part of the remuneration, in exchange for the employees’ services (work).
- An incentive program usually has an established vesting period, ie. how long you must work for the employer before you have the right to take part in or use the shares.
Subscribe below and follow us on social media to stay updated with our insightful blog posts. We're here to help you navigate the world of equity incentives and drive your company's success!