What is an incentive program?
An incentive program is an arrangement that lets employees or key people share in the company's future value growth. The aim is to attract, retain and motivate staff by tying their financial outcome to the company's performance. For unlisted growth companies, which often have limited cash, incentive programs are a common way to compete for talent.
Common forms
- Warrants (teckningsoptioner) — the right to subscribe for new shares in the future at a predetermined price. See warrant.
- Employee stock options (personaloptioner) — options tied to employment, where "qualified" employee options have favourable tax treatment for smaller companies.
- Call and synthetic options and direct share purchases are other variants.
Vesting and the option pool
The benefits are often earned over time through vesting, so the person must stay to get the full benefit of the program. The company usually reserves a portion of the shares for the programs in an option pool, which means a planned dilution for existing owners. The tax rules for incentive programs are complex and should be checked with an adviser.