How: Design choices:
connect rules to objectives
Now you have made the key decision about the settlement, type of incentives and liquidity. However, it is now time you need to make a lot of detailed decisions. Take into account the strategy plan of the company, what should happen in case certain good or bad scenarios occur, what do you want to include in the plan rules, and what do you want to leave open and keep discretionary.
A robust scheme relies on disciplined design. Work through the major decisions with your objectives in view and make payroll and governance part of the design rather than an afterthought. Key design considerations are:
Eligibility
Decide whether awards cover executives only, senior leadership, or a broader population. Inclusion supports culture; focus targets scarce skills and pivotal roles.
Award frequency and sizing
Choose between one-off “mega grants” or annual grants. Define grant sizing bands, pay mix, and allocation logic so awards are consistent and explainable.
Performance measures and vesting
Select a small number of key financial or strategic metrics, such as TSR, EPS, ROE, or EBITDA, and calibrate targets carefully. Utilise time-based vesting for retention and performance-based vesting when alignment with value creation is crucial. Multi-year periods reinforce horizon and discourage short-termism. Re-testing should be used sparingly and only where it supports behaviour rather than gaming.
Cessation of employment
Define the categories of good versus bad leavers precisely and establish vesting and forfeiture consequences that protect retention and fairness.
Change of control
Specify a change‑of‑control treatment that is pragmatic, avoids value leakage, and reduces disputes. Clarify dividend rights, including dividend equivalents for options or SARs.
Tradability and lock-ups
For unlisted companies, clarify the definitions of tradability and lock-up periods, particularly around investment rounds, employee transfers, and IPOs. Ensure participants understand when they can sell and what triggers tax liability.
Governance and documentation
Plan the STAK set‑up and notarial steps for share‑settled awards where relevant. Draft plan rules and individual agreements are coherent and accessible. Ensure that decision rights, information rights, and reporting cadences are explicitly defined.
Payroll and reporting
Map wage tax withholding, social security, and, where relevant and reliable, processes with audit trails. Align HR, payroll, and finance so data flows cleanly, and there are no surprises at taxable moments.
Document decisions, simplify where possible, and maintain a consistent storyline for both participants and managers. Take time to digest all these decisions and eventually the final share-based incentive plan is ready.
The below overview shows some examples what companies chose as share-based incentive plan taking into account their why, what and how: