Readying Equity Plans for the Public Stage

Going public is a major milestone for any company—a culmination of years of growth, investment, and strategic execution. But with this transition comes a new level of visibility, accountability, and scrutiny. While financial disclosures and governance structures often take center stage in IPO readiness checklists, one area that can make or break a smooth transition is equity compensation.

Equity compensation is more than just a tool to attract and retain talent. For companies on the path to IPO, it becomes a strategic lever—one that impacts investor confidence, employee engagement, regulatory compliance, and long-term success in the public markets. To move from IPO-ready to IPO-proven, companies must elevate their approach to equity compensation across six key dimensions: plan design, executive alignment, infrastructure, communication, retention, and broad-based ownership.

1. Equity Plan Design: Structuring for Flexibility and Accountability

The foundation of an effective equity compensation strategy is a well-designed stock plan—one that balances growth-oriented flexibility with market-facing governance. Upon IPO, a company’s equity plan shifts from an internal incentive mechanism to a public-facing, investor-scrutinized framework.

Key Components of IPO-Ready Plan Design

• Initial Share Reserve: The median initial share pool for IPO companies is approximately 10% of basic common shares outstanding (CSO). However, this should be tailored to reflect expected headcount growth, grant strategy, and equity burn rate.
• Evergreen Provisions: Roughly 4–5% annual refresh provisions are common at IPO, typically with a 10-year life. These provisions allow for ongoing share pool replenishment without new shareholder approval—though most companies remove them before the next shareholder vote to appease proxy advisors.
• Liberal Share Recycling: Returning shares withheld for tax purposes or option exercises back into the pool extends plan life. While this is often criticized by ISS and Glass Lewis, it’s frequently used by newly public companies aiming to preserve flexibility.
• Governance Enhancements: Best-in-class plans include clear definitions around change-in-control events, director award limits, treatment of dividends on unvested awards, and termination scenarios (e.g., “cause” and “good reason”).

Why It Matters

A well-designed plan communicates discipline and foresight. It assures investors that the company is prepared to manage dilution, reward performance, and grow sustainably in a public setting.

2. Executive Alignment: One-Time Grants and Strategic Incentives

Going public is the result of leadership vision and execution. One-time IPO-related equity grants are a powerful way to reward contributions, align executives with future performance, and retain critical talent through the transition.

IPO-Related Executive Grants

• Size of Awards: CEO one-time grants typically range from 0.5% to 2.5% of the company’s market cap at the time of the award, with smaller companies tending toward the higher end of the range.
• Grant Mix: Over two-thirds of IPO-related executive awards include performance-based vehicles—most commonly performance share units (PSUs) or stock options—paired with time-based RSUs. The performance-based component is usually larger to reinforce value alignment.
• Performance Metrics: Most awards tie vesting to one metric, often market-based (e.g., stock price or total shareholder return). Financial metrics like revenue or earnings growth are less common but may be layered in overtime.

Managing Stakeholder Perception

While proxy advisors may initially flag large one-time awards, strong rationales such as alignment with long-term shareholder value creation and retention needs—can mitigate criticism. Companies should ensure transparent communication around intent, structure, and performance conditions.

3. Infrastructure Excellence: Scaling Administration for Public Demands

The move from private to public isn’t just philosophical—it’s operational. Managing equity at a public company requires precision, automation, and integration. Processes that worked for a 200-person startup don’t scale to a global, publicly traded enterprise.

Building a Public-Company-Ready Admin Function

• Cap Table Integrity: Auditable, accurate cap table records are essential. Errors in stock ownership, grant history, or forfeiture tracking can delay filings or trigger regulatory red flags.
• Robust Equity Platforms: Implement enterprise-grade systems that support grant processing, automated vesting, tax withholding calculations, mobile access, and global compliance features.
• Integration with Finance and HR: Real-time reporting on expense, dilution, and headcount impact is critical for 10-Q and 10-K filings, executive dashboards, and investor communications.
• Internal Controls and SOX Readiness: Ensure grant approvals, plan amendments, and share reserve tracking meet Sarbanes-Oxley and other audit standards.

A scalable equity infrastructure supports future growth, minimizes risk, and positions the company to respond nimbly to business changes and market expectations.

4. Stakeholder Communication: Empowering Employees Through Education

Even the most generous equity plan fails if employees don’t understand it. Going public introduces new terminology, restrictions, and financial implications that can confuse even seasoned professionals.

Key Communication Milestones

• Pre-IPO Education Sessions: Host town halls, webinars, and manager briefings on what the IPO means for stock options, RSUs, liquidity, and taxation.
• Liquidity Event Guidance: Explain the lock-up period, trading restrictions, and how to navigate recordkeeping systems. Include guidance on tax withholding and timing of sales.
• Customized FAQs and Tools: Provide scenario-based examples (e.g., “What happens if I leave before the IPO?”), self-service calculators, and country-specific guides for global employees.
• Access to Financial Coaching: Partner with financial wellness providers or offer 1:1 sessions with tax advisors during critical windows like IPO day or lock-up expiration.

The Value of Communication

Well-informed employees are more confident, more likely to stay, and better ambassadors for the company’s public debut. Clear, consistent messaging also reduces HR and legal team burden post-IPO.

5. Retention: Sustaining Engagement in a Post-IPO World

Going public is not the finish line—it’s a new beginning. Public company life brings new pressures: market volatility, performance expectations, and intense talent competition. Equity compensation must evolve from “reward for past performance” to “incentive for future impact.”

Strategies That Work

• Pre-IPO Liquidity Programs: Offer structured tender offers or secondary transactions so employees can realize some value ahead of the IPO. This improves morale and reduces attrition risk during the lock-up.
• Post-IPO Refresh Grants: Keep equity competitive and responsive to market conditions with annual refresh cycles and expanded participation beyond executives.
• Performance-Based Vesting: Reinforce alignment by tying equity vesting to post-IPO performance goals, such as revenue targets, EBITDA milestones, or market-based metrics.
• Global and Inclusive Equity Access: Extend equity beyond senior leadership to create a culture of ownership. Tailor communication and administration by region, role, and employee lifecycle.

Retention isn’t just about grant value—it’s about perceived value. Employees stay where they feel aligned, rewarded, and empowered.

6. Launching an ESPP at IPO: Broadening Ownership from Day One

One of the most strategic and impactful moves a company can make during its IPO is to launch an Employee Stock Purchase Plan (ESPP). While RSUs and options are key tools for rewarding and retaining talent, ESPPs offer a unique opportunity to engage all employees—and should be included at IPO, not delayed.

Why Launch at IPO?

• Employee Excitement Is Highest: Leverage the energy and optimism of the IPO moment by offering an accessible, wealth-building opportunity to everyone.
• Increased Ownership Culture: Launching at IPO signals that equity isn’t reserved for a few—it’s a foundational benefit.
• Stronger Shareholder Alignment: Employees become investors on Day 1, reinforcing a shared vision with public shareholders.
• Streamlined Governance: Including the ESPP in your S-1 and IPO shareholder approval avoids a separate post-IPO vote.

How ESPPs Add Strategic Value

• Broader Participation: Eligible to nearly all employees—hourly, salaried, global—who may not receive other equity grants.
• Financial Wellness & Retention: With a 15% discount and lookback features, ESPPs can drive meaningful financial outcomes for employees and are consistently linked to higher retention.
• Positive Governance Optics: ESPPs are well-regarded by proxy advisors, especially when structured with common-sense limits and transparency.

Design Considerations at IPO:

• Qualified 423 Plan Structure: Offers favorable tax treatment in the U.S.
• Discount and Lookback: Most competitive plans offer a 15% discount and a 6–12 month lookback.
• Global Adaptation: Start with core regions and expand where possible, addressing legal, tax, and currency hurdles.

Promote the ESPP in pre-IPO roadshows and employee onboarding to maximize early enrollment and participation rates.

In Summary: IPO-Ready to IPO-Proven

Equity compensation is the bridge between private promise and public performance. It’s how companies align their leadership, reward their workforce, and build durable value across all stakeholders.

To move from IPO-ready to IPO-proven, companies must:

• Design equity plans that scale
• Align executives with performance
• Build operational rigor
• Communicate with clarity
• Launch inclusive benefits like ESPPs early
• Prioritize long-term retention, not just short-term hype

When done right, equity compensation becomes more than a retention tool—it becomes the foundation of a lasting ownership culture.