· How to Set Up a New Stock Incentive Plan

Introduction

A Stock Incentive Plan (SIP) is used to grant company equity to eligible grantees. Although there can be many reasons to grant stock or options, the general purpose is to attract, retain, and motivate people who are expected to make important contributions to your company. To learn more about Stock Incentive Plans, check out this article.

This article explains the steps to create a new SIP in Fidelity Private Shares using our standard templates to generate the plan documents. If you already have an existing SIP, see this article for steps on how to upload an existing stock incentive plan. To make changes to an existing SIP, see this article on how to amend a stock incentive plan. 

Set Up Stock Incentive Plance Workflow 

1. To get started, click Set Up Stock Incentive Plan under the Equity heading in the Start New Workflow page. Enter your plan details. Add your Stock Incentive Plan name and the number of shares to be allocated.
   NOTE: The number of Authorized Shares allocated to your plan is generally decided in consultation with lawyers, mentors, members of the Board, and others.
   
2. Check Constraints on New Stock Incentive Plan. The system uses the formula shown to compare the number of shares requested for the SIP to the number of available authorized shares. The comparison is to help ensure that the shares requested are less than or equal to the number of authorized shares. If you have any questions, you may contact your legal counsel.
   
3. Set Grant Form Defaults. Here you will set the initial defaults for the Grant Form template used during the Grant Plan Shares workflow. During this step, you will set the following grant form defaults.
   
   
   • Vesting Period: the number of years over which vesting stock is distributed.
   • Vesting Frequency: the frequency with which vesting stock is granted.
   • Include Vesting Cliff: a typical option vesting scheme spans 4 total years (sometimes 5) with a 1-year initial cliff. A 1-year cliff means no shares vest until the first anniversary of your start date. An employee’s shares do not vest until the cliff ends, at which point all of the shares that should have been vested during this time become vested at once. After that, vesting typically occurs monthly or quarterly over the remaining period.
   • Cliff Duration: length of time for the vesting cliff. One year is a typical option.
   • Acceleration Clause: an acceleration clause establishes the circumstances under which the vesting of some or all the equity in question accelerates, typically in connection with a change of control of the company (e.g. sale). If the criteria set forth in the acceleration clause are met, an employee will immediately vest some portion or all of their unvested equity. For example, a single-trigger acceleration clause provides that upon a sale of the company, any then-unvested options automatically and immediately vest.
   • Termination Clause: how time vested RSUs will be handled during termination. 
4. Select your method of approval for your SIP. Please note that you can upload an executed consent, create a new board consent, or upload a consent that still needs signatures, depending upon your specific needs. Once you receive all the required approvals, your new Stock Incentive Plan will be fully set up and available to grant shares to your employees, including Incentive Stock Options, Non-Qualified Stock Options, and Restricted Stock Awards.

---

Fidelity does not provide legal or tax advice.

The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity provides cap table management and other administrative services to private companies and their equity compensation plans.

Screenshots are for illustrative purposes only.

1127052.1.0

© 2024 FMR LLC. All rights reserved.