How to Retain Talents in Start-ups —— Limited liability company equity incentive and other projects

Without high salary, what should start-ups do to attract and retain talents? It is unrealistic to influence with ideas; Welfare encouragement, insufficient funds. In practice, there are two realistic methods: (1) performance commission/bonus, (2) equity/option incentive. The former is concise, giving incentives to a certain percentage of commission according to the achieved performance or giving a certain amount of bonus when the performance reaches the set target. The latter has many legal and operational problems, which need specific analysis. Equity incentive is an incentive scheme based on enterprise equity or option. Under certain conditions, the scheme grants the incentive target enterprise equity or option, or links the incentive target with the equity appreciation or dividend of the enterprise, so that the incentive target can work hard for the development of the enterprise from the standpoint of the enterprise owner. When it comes to equity/option incentives, the following models SARS usually mentioned: (1) stock option model, (2) restricted stock model (performance stock), (3) stock appreciation rights model and (4) virtual stock/dividend right model. Because most start-ups in China are limited liability companies, they can't share the capital equally like joint-stock companies, and the shares of limited liability companies can't be determined through securities market transactions like the shares of listed companies, and start-ups often go public for a long time, so the above model can't be fully applied to start-ups. The equity/option incentive schemes suitable for start-ups can include the following: (1) the first-phase equity incentive scheme, and (2) the first-phase equity incentive scheme. (1) Medium-term equity incentive scheme: Medium-term equity refers to granting the incentive object the right to buy a certain amount of equity in the enterprise at a certain price within a certain period of time after certain conditions are met. Similar to the stock option model, the enterprise grants an option to the incentive object, and the enterprise sets the conditions for the incentive object to purchase the equity of the enterprise in advance (that is, the exercise conditions). After the exercise conditions are met, the incentive object has the right to purchase the equity of the enterprise (exercise), thus becoming one of the shareholders of the enterprise. The exercise conditions generally include three aspects: (1) the enterprise, for example, the enterprise has achieved the scheduled performance; (2) Incentive object: For example, the incentive object must pass a certain assessment; (3) In the waiting period, it takes some time between the grant and exercise of options. The key of the equity incentive scheme in the implementation period is to set the predetermined performance and assessment standards, evaluate the work performance of the incentive object, and grant the corresponding equity scale. The long-term equity incentive scheme is mainly based on the equity appreciation of enterprises, rather than cash, and is suitable for enterprises with large capital demand, great development potential and rapid growth, such as Internet enterprises. (II) Share-holding/performance-sharing incentive scheme: Share-holding incentive scheme refers to the incentive scheme that grants the incentive object to buy a certain number of shares of the enterprise at a certain price under certain conditions, thus becoming the shareholders of the enterprise. Performance stock incentive plan refers to an incentive scheme in which an enterprise agrees to give or sell a certain number of shares to the incentive object for free when the incentive object has achieved certain performance. In practice, in order to attract talents with certain skills or channels, some enterprises allow them to buy a certain number of enterprise shares at a symbolic price on the condition that they have served in a certain position for a certain number of years or provided agreed technology. Most of the conditions set include both a certain number of years of work and performance requirements. The key to the implementation of equity/performance stock incentive scheme lies in the value evaluation of incentive object, the setting of scheduled performance, the pricing and scale of equity transfer. The incentive scheme of holding/performing shares is mainly based on the performance of the enterprise, not through the appreciation of the equity of the enterprise, so it is more suitable for enterprises that do not want to go public or whose listing situation is unknown, and has more incentive effect on enterprises with relatively stable development. (3) Virtual equity/performance stock incentive scheme: Virtual equity is a kind of income right granted to the incentive object by the enterprise under certain conditions, not equity. According to the virtual equity/performance shares granted by the enterprise, the incentive object can enjoy dividends similar to dividends or premium income equivalent to equity appreciation, but the incentive object will not become a shareholder of the enterprise and has no ownership or voting rights. The key to implement the virtual equity/performance stock incentive scheme is to determine the scale of virtual equity/performance stock according to the specific situation of the enterprise. Virtual equity/performance stock incentive scheme is a disguised bonus, which will not affect the ownership structure of enterprises, and is also convenient for the implementation of the listing strategy of enterprises, but it has great financial pressure on enterprises and is suitable for enterprises with abundant funds and stable development. In the concrete operation of the above scheme, we will face many legal and non-legal problems, such as the source of equity granted to the incentive object, the determination of equity transfer price and quantity, the dilution of equity when venture capital (VC) intervenes, etc., which will not be analyzed one by one here. In short, when selecting and designing incentive schemes, enterprises should obey the strategic development goals of enterprises based on their specific conditions, especially for enterprises planning to go public, and pay attention to the connection between their schemes and listing goals, so as to avoid hindering their listing due to the implementation of their schemes. Enterprises should describe all aspects of the designed scheme in detail through written schemes and agreements, so as to legalize it and avoid legal risks.