Alternatives To Equity Compensation

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Equity compensation is a well known tool for rewarding and incentivizing teams. But it is not for everyone.

Many founders are either unable or unwilling to share ownership of their company but still want to offer their team upside potential in the business.

In this scenario, it’s often possible to create a deferred compensation program that mirrors some of the economic benefits of ownership without actually issuing shares.

Examples:

Transaction Bonus Plans. Companies can grant service providers rights to a share in the proceeds of a liquidity event, such as a Company sale.

Profit Sharing Plans. Companies can grant service providers rights to share in the Company’s annual profits.

Phantom Stock Plans. Companies can grant service providers “phantom stock” which appreciates in value alongside actual stock and can be liquidated in connection with certain future events, such as retirement or a change of control.

As with stock grants, participation in these programs can be made subject to vesting, the achievement of milestones, or other requirements.

These programs have drawbacks and aren't perfect. Payments are generally taxed as ordinary income rather than capital gains. And they must be structured carefully to comply with stringent tax requirements, including IRC 409a.

Nevertheless, they are valuable and useful tools for founders seeking to reward and incentive long-term team members while retaining full ownership and control of their companies.

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Francesco Barbera

Francesco Barbera is a corporate attorney representing emerging growth companies in a wide range of industries, including software, technology, digital, fashion, health care, retail and e-commerce.


He counsels entrepreneurs, investors and established companies on the full range of their business activities, from formation through raising capital, growth and acquisition. He has special expertise in the representation of mission-driven organizations and social enterprises. 


Throughout his career, he has represented the National Broadcasting Corporation, the Grammy Museum, Ares Capital Management, Credit Suisse First Boston, as well as privately held businesses in internet, media and technology, mobile applications, consumer products, professional sports, film and television production, among others over the course of his career. 


Francesco began his legal career at two large, international law firms in Los Angeles, where he represented large and small enterprises in a broad range of transactions, from mergers and acquisitions to public and private securities offerings to the formation of partnerships and joint ventures.


Francesco is also the Co-Chairman of the Los Angeles chapter of Conscious Capitalism, Inc.A lifelong student of psychology and personal development, Francesco holds a Master’s Degree in Spiritual Psychology from the University of Santa Monica and has been trained and mentored by numerous leaders in the personal development arena, including Steve Chandler, Byron Katie and George and Linda Pransky. 

Francesco has also founded and represented non-profit initiatives.


He has served as outside counsel to the Los Angeles Leadership Academy, a charter school dedicated to training the next generation of social and political leaders, and he is the founder and former Executive Director of SpiritWalk, a non-profit fundraiser created to benefit the University of Santa Monica.  

Francesco’s writing has appeared in The American Lawyer, California Lawyer, Slate, and others. He served as the Supreme Court columnist and Executive Editor of the Harvard Law Record and was the founder and editor-in-chief of the Penn History Review, the first Ivy League journal in the country dedicated to the publication of undergraduate historical research.


Francesco is an honors graduate of Harvard Law School, cum laude, and the University of Pennsylvania, summa cum laude and Phi Beta Kappa.