Public company equity-based pay practices, such as stock, restricted stock, and employee stock options are often a poor fit for private companies committed to reward leaders for performance and growth and to motivate leadership and capital succession.
Equity based programs that make sense and work well in a public company come with many ills for private companies: they can be costly, tax-inefficient, static, ineffective, and sometimes downright unfair. In the worst case, equity pay practices can derail the owners’ plans for growth and succession.
Dynamic synthetic equity presents a more tailored solution for private companies interested in leadership and capital succession. Restricted stock and employee stock options often distort outcomes for private companies. Consider that:
- The underlying stock price in a private company gyrates as owners enter and exit from, for example, a living or a death buyout or even a recapitalization. Stock price can jump 50% – unjustly rewarding the owners of true equity awards.