In a private company setting, after the founders have been issued fully vested or restricted stock under their stock purchase agreements, the employees, consultants, advisors and directors who are subsequently hired commonly receive equity compensation through stock options. There are a number of reasons for this, including ease of administration, macro- and micro-market norms and a desire to minimize the capital commitment for the individuals who are to receive equity awards. Consistency is also important, as it helps avoid separate negotiations with each individual on the nature and terms of equity grants. Founders find this best accomplished by sticking to an “everyone gets stock options” principle, so that the only negotiation is about how many shares are covered by the stock option grant and what the vesting schedule should be.
An exception to the “stock options only” principle sometimes occurs during negotiations to attract and hire an experienced senior executive who may request restricted stock, but even then the benefits of an “everyone having the same” form of equity may prevail.
In this article, Cisco Palao-Ricketts provides an overview of some of the key considerations in making stock option grants: who gets an option, the size of the option, vesting terms and pricing, click here to read the full article.