Among the challenges inherent to the growth of a company, employees are central and essential. To encourage and keep these professionals engaged, many companies have adopted LTI (Long-Term Incentives) compensation models. One of the best-known models in this modality is the structuring of stock option plans, or stock options.
In this incentive model, the contemplated employee receives the right to acquire company shares at a price below the market price, for a certain period of time. That is, with the growth of the company and a virtual increase in its market value over time, the employee can acquire shares in the company at an exercise price previously set, before appreciation. In stock option contracts, the following definitions are essential:
• Grace period (or cliff), which is the minimum length of stay for employees to exercise their options;
• Share value, which is the price fixed for purchase when exercising the option in the future; It is
• Maximum term, which is the deadline for the employee to exercise his right to purchase the shares after the grace period/cliff
The purpose of this model, in general terms, is to align the interests of a company's partners and employees, fostering a “sense of ownership” and encouraging professionals to maintain their performance at the highest level. In addition, the model is interesting for companies, since it does not require capital expenditure to encourage the employee (like other incentive models, such as financial bonuses) and helps in the maintenance and retention of employees essential to the business.
In the context of startups, the modality is even more attractive, since the potential for stock appreciation is greater than in traditional companies and the non-disbursement of cash is significant for the company, in view of possible difficulties in raising funds in low liquidity scenarios. According to the report “Digital Transformation in Latin America 2021”, by Atlantico, in 2021, 6% to 10% of the corporate structure of Latin American unicorns were already committed to stock options.
