At Hall Benefits Law, we help employers develop effective executive compensation plans and the subject of adding a restricted stock program may arise. When deciding upon how to attract, retain and motivate your employees through your executive compensation program, it’s crucial to understand their complexities. In this article, we will look at the pros and cons for offering a restricted stock program to your employees.
Pros for Offering a Restricted Stock Program
It is common for corporations to give key executives or managers stock options. A restricted stock program is similar, except:- Employees actually own the restricted stock.
- Stock options merely grant the employee a chance to buy stock at a later time.
- Rewards key employees, promoting loyalty.
- Aids in retention of employees.
- Causes the employee to be more invested in the success of the business.
Cons for Offering a Restricted Stock Program
Components of executive compensation or employee benefit plans can be great for the employer, great for the employee, or not-so-great for either. It’s important to weigh pros and cons carefully. With restricted stock programs, employers may be concerned about the following issues:- Cash compensation is usually easier to manage and administer than equity-based compensation.
- It’s possible to give away too much of the company and lose a controlling interest.
- Potential buyers of the company may not be interested in the stock program.
- Tax implications to the company and the restricted stockholder can become complicated.
- Employee stock owners have rights, which may include the right to review the company books.
