Equity incentive plans: how to motivate and retain key talent in your company

What are equity incentive plans?

Equity incentive plans, commonly known as equity incentive plans in English, are tools increasingly used by companies to attract, retain, and motivate key talent. This type of compensation offers employees, executives, and even external collaborators the opportunity to participate in the ownership or value creation of the company.

Although more common in startups and tech companies, an increasing number of businesses of all sizes and industries are considering these plans as a strategic way to build a culture of ownership and commitment.

Who are the equity incentive schemes aimed at?

These plans usually focus on the following profiles:

• Executive team or key management.
• External advisors with strategic roles.
• High-impact technical profiles.
• In less common cases, the entire team, when the goal is to build a participatory culture across the whole organization.

Why is it advisable to implement an equity incentive scheme?

The reasons why companies opt for equity incentives schemes are diverse and strategic:

1. Attracting and retaining talent: in highly competitive markets, offering equity participation can make the difference when it comes to hiring highly qualified professionals.

2. Motivation and alignment: when employees feel like owners, their mindset shifts. They don’t work just for a salary, but for the growth of the company’s value, aligning their interests with those of the shareholders.

3. Cash preservation: in early stages or during times of financial strain, current salaries can be reduced by offering greater future rewards tied to the success of the project.

4. Ownership culture: a well-structured plan can create a sense of belonging, foster loyalty, reduce turnover, and enhance collective performance.

5. Preparation for sale or succession: they are useful when preparing for an IPO, partial or full sale, or a management transition. They help ensure continuity and keep the team motivated until the end of the process.

When are they most interesting?

These plans are particularly relevant in:

• Startups with high growth potential.
• Phases of restructuring or low liquidity.
• Expansion processes through acquisitions.
• Generational transitions or successions.
• Stages prior to a sale or IPO (Initial Public Offering).

The common denominator is that all these scenarios involve a medium/long-term vision where the team must be involved to increase the value of the company.

Types of equity compensation plans

Although there are many variants, the main ones can be grouped into three main categories:

Stock Options

They are rights (not obligations) to purchase company shares at a fixed price in the future, provided certain conditions are met (time, performance, strategic milestones).

Advantages:

• The beneficiary only gains if the company grows in value.
• They perfectly align the interests of management and shareholders.

Ideal for:

• Publicly traded companies, where the goal is to maximize value for the shareholder.

Restricted Stock

Actual shares are granted (not options), but subject to restrictions such as tenure or performance. They cannot be sold or exercised until the conditions are met.

Advantages:

• The beneficiary gains value even if the share declines.
• They may include discounts or free concessions.

Ideal for:

• Startups, where low current salaries are compensated by more stable future profits.

Phantom Shares

They simulate participation in the capital, but without granting actual shares or voting rights. The beneficiary participates economically in the growth of value, but has no voting rights or dividends until maturity.

Advantages:

• They do not alter the shareholding structure.
• They can be settled in cash in a liquidity event (sale, IPO, etc.).

Ideal for:

• Companies that plan a sale in 2-3 years, and want to incentivize the team without giving up ownership.

Key elements for designing a good plan

1. Clearly define the objective

• Talent retention?
• Preparing a sale?
• Increase productivity?
• Attracting key profiles?

Each objective requires a different design.

2. Determine beneficiaries and total percentage

• Who are the key profiles?
• What percentage do you want to allocate (e.g. 10% of the capital is common, but can vary)?
• How will it be distributed among them?

3. Liquidity planning

Especially important if there is no clear liquidity event (such as a sale). The company should anticipate how it will pay the beneficiary if there is no market to sell shares.

4. Choosing appropriate indicators

The best plans are linked to concrete results: EBITDA growth, turnover, enterprise value, achievement of strategic milestones, etc.

5. Communicate it well

A common mistake is to design a good plan, but not communicate it clearly to employees. If the team does not understand it, they are not motivated. Transparency and pedagogy are key.

6. Managing dilution

The original owner will see his stake reduced (e.g. from 100% to 90%), but if this leads to a significant increase in value, it amply compensates.

Practical cases of use according to type of company

Advice for a long-term equity incentive plan

Creating an equity incentives plan is not a one-off or isolated exercise. It requires:

• Advice legal, tax and accounting.
• Embedding it within the growth and human resources strategy.
• Periodically review it and adapt it to new business realities.

As the webinar speaker rightly points out, it’s not a “one-shot”, but a structural part of corporate development.

A good stock incentive plan can be one of the most powerful tools for transforming a company's culture, maximising value and attracting top talent.

It is not just about ‘giving shares’, but about building a shared vision of the future between the partners and the team that makes it possible.

Whether you are in a startup, in a succession process or preparing for a sale, there is probably a type of plan that fits your goals. With the right design and communication, equity can become the silent engine that drives your company's sustainable growth.