Share scheme design: Get your free guide

Last updated: 1 October 2024. 

What does a good share scheme look like? What should I include? These questions come up a lot. And while I hate to say it as it doesn’t feel helpful, it’s your business, so how you design yours, ultimately, is up to you. And you alone.

But look, I get it. It’s helpful to see what others do, to have a benchmark, something to compare to.

Vestd was the UK’s first share scheme platform on the scene, so believe me when I say the team has seen many schemes in their time - the good, the bad, and the outright ugly.

Drawing on that experience, I’ve collected insights from across the business to bring you the definitive guide to share scheme design.

In it, you’ll find our experts' top recommendations for how to set one up and create a scheme that'll inspire your team to bring their best to the table.

I’ll cover the gist of it in this article for those short on time. But first, why bother setting up a share scheme? 

Why should I set up a share scheme?

Share schemes are brilliant for teams and just as beneficial for businesses. And that’s because sharing equity triggers something we call the Ownership Effect. 

When someone has a slice of the pie (even a small slice) it transforms their relationship with the business. They’re literally and figuratively invested in the company’s success because they’ll one day get to share in that success.

Once you’ve enrolled your team on a share scheme, you have a group of people willing to give it their all and help each other achieve their collective goals for the good of the company.

A highly motivated and engaged workforce has been shown time and time again to benefit the bottom line.

The proof is in the pudding. Customers that set up Enterprise Management Incentives (a tax-efficient share option scheme) reported fantastic improvements across the board, especially in recruitment, retention and productivity. 

Smart share scheme design

Assuming by this point that I’ve convinced you it’s a great idea (if you weren’t on board already), let's explore the top things to consider when designing your company share scheme for maximum impact.

We cover all of this in more detail in the guide, so remember to check that out. The list below is but a taster.

What the best share schemes have in common

A Michelin star meal is made with quality ingredients. The same can be said for a best-in-class share scheme, so choose carefully. The five main ingredients that we think should be in each and every recipe are:

1. Conditionality
2. Vesting
3. Inclusivity
4. Flexibility
5. Fairness

I’ll quickly walk you through them.

1. Conditionality

You can set time and performance-based conditions that determine when and how someone’s equity is released. Once those conditions are met, their shares or share options become unconditional. But until that point, they’re limited in what they can do with them.

You’ll find a list of ideas for tangible and measurable conditions you can set here.
It’s a long-term incentive that encourages individuals to stick around and work towards strategic goals while protecting the business if that individual fails to deliver.

2. Vesting

Time-based vesting is a great way of rewarding loyalty to the business. How this works is, instead of becoming a shareholder immediately, a person effectively earns their shares over time. 

You can tailor a vesting schedule to no end. For instance, you can make it so that an employee’s share vest after they’ve completed their probationary period or first 12 months of employment (what’s called a ‘cliff’).

You can determine the frequency that their shares vest (annually, monthly, quarterly or yearly). You can even back-weight it, meaning they get a great percentage of their allocated shares in the later years of their employment.

75% of Vestd customers choose time-based vesting for their share scheme.

3. Inclusivity

Now this one is a little contentious I’ll admit. We say, equity for all who’ve earned it!

But not every founder is that way inclined - they’d prefer to preserve equity for themselves, their fellow founders, the senior leadership team and investors than give shares to every team member, and that’s fine.

The thing is, you can still retain a significant stake in the business and reward the entire team with equity. You don’t have to give masses away, even small amounts will unlock the ownership effect.

And after all, without your team, what have you got?

The question of how much equity, is another question entirely. I won’t go down that rabbit hole here but to help you answer that question, we built a handy calculator. Check it out. 

4. Flexibility

This one is particularly relevant for share option schemes. If your goal is to sell your company or take it public, then an exit-only scheme makes sense.

Exit-only: option holders have to wait until an exit event happens before they can buy their options.

However, as this is dependent on an exit event taking place, these schemes are quite rigid. Can you say for certain what the future holds for you and your business?

That’s why it’s worth considering an exercisable scheme, to give you and the recipient more flexibility in the event that things don’t quite pan out the way you thought they would.

That way, the option holder has the flexibility to exercise their options when it makes the most financial sense for them.

Exercise = convert options into shares to buy, keep or sell.

You can even have a hybrid of the two, an exit-only scheme but with a clause that allows their options to be exercised after a specified period.

5. Fairness

Our final pillar of share scheme excellence, and in a way it underlies everything covered so far.

In the spirit of fairness, a share scheme agreement should include ‘good leaver’ and ‘bad leaver’ clauses. These outline precisely what happens to someone’s shares in the company when they leave and under what circumstances.

For example, if an employee leaves on good terms, there’s no reason why they shouldn’t be able to keep all of their shares that have already vested. They’ve earned it, right?

If an employee leaves on bad terms e.g. gross misconduct, the reverse is true. You can prevent that person from walking away with some or all of their vested shares, so you know your company’s equity is shared among those who truly deserve it. 

Download your free guide

There’s a lot more than goes into setting up and designing a share scheme. You can find everything you need to know in our guide. I hope you find it helpful.

And if you want to learn more, or go right ahead and get your scheme set up, book a free consultation with an equity specialist today.