WHAT IS SHARE VESTING

Hello CEOs,

Let's discuss a very interesting and creative method of retaining and rewarding your hardworking employee instead of giving them only awards and certificates of recognition.

Trust me, these employees are very tired of this method of reward and I believe that they would very much appreciate this new move.

Now, this is just my opinion. You can choose to go with it or not.

I just thought that instead of buying pizza and awarding your diligent employee with an "employee of the year" cup or certificate, why don't you try offering them equity stakes in the Company. That is offering them to buy a part of the shares of the Company thereby making them a shareholder in the Company.

If the employee accepts this offer and buys the shares, it is a win-win for both the Company and the Employee.

Now what do I mean?

The Employee feels a sense of ownership no matter how small and the Company gets to retain this Employee for as long as the relationship could last. This relationship if properly managed could last for more than 10 years.

Now this is not a method of "Tying your employee down", It is just a method of retaining them and of course, it is based on choice. The Employee could decide not to accept the offer.

The Company could award the employee the percentage of shareholding immediately or use a more efficient and effecting approach to achieve this arrangement.

That is what "Share vesting"comes in.

What is "Share vesting"?

This is the method of granting shares to an employee or even shareholder over a pre-determined period of time with an option for the Company to buy back the shares at an agreed price due to certain agreed circumstances or events.

In simple terms, the shares would be awarded to the employee over a period of time which is usually a number of years with a buy back option.

Let me paint a scenario for you;

Company A observed that Employee B is a very hardworking and diligent employee and decides to award him with equity stakes in the Company using the share vesting arrangement. Company A offers that Employee B would be awarded 5% shares of the Company over a period of 5 years. Employee B would get 1% for each year of working with the Company for the next 5 years. So 1% for each year for 5 years would be 5% at the end of the 5 years. Then Employee B would be allotted the 5% shares after the 5 years. This is when this would be effected in the corporate records of the Company at the Corporate Affairs Commission.

Now, you should understand that at the point of the offer, there would be other conditions that must be met before each % of shares would be gained by the employee every year. These conditions must be clearly stated and achievable. These conditions must not be abstract or based on any individual recommendations. It could even be an achievable target set by the Company. There should also be a buy-back option by the Company at a certain rate per share. There could be also an option of extension of years due to any unforeseeable circumstances.

Another important part to consider is the method of payment for the allotted shares. It could be by a deduction in the employee remuneration for a certain period of time or outright payment which could be for a period of time otherwise the shares would be reverted back to the Company. Also the rate of the shares would be determined at these point. All these conditions and points must be strictly decided and planned at the point of offer and acceptance of the reward. This reward method should not also compromise the Company's policy for this particular employee.

All these agreements and discussions must be documented for clarity purposes and to avoid legal tussles and issues in the future. This is where a "Share Vesting Agreement"comes in.

A Share Vesting Agreement is an agreement that document all discussions between an employee and a Company with respect to the share vesting mechanism of retainership. This agreement must be reviewed, understood and executed between the Directors of the Company on behalf of the Company and the Employee.

This agreement would help clear any legal tussles and disagreements between the Employee and the Company in the future. The contents of this agreement would be percentage of shares to be granted to the employee, the vesting period, the conditions to be met to earn the shares, the circumstances that could lead to a buy-back by the Company, the rate at which the Company could buy back the shares, etc.

It is very important that this agreement is drafted by a competent business lawyer that understands the purpose and intent of the agreement, the Company and the employee. The employee is also at liberty to review the agreement through a legal practitioner before accepting to execute the agreement.

Note: In my own opinion, this is very interesting method of retaining your most diligent and resourceful employee.

However, I advise that the employee is properly reviewed before he or she is offered this option of reward.

My name is Omolayo Olorunsola and I am your go-to business lawyer.

Don't hesitate to drop your comments and thoughts about this.

See you in my next article....

Bye!!!!