The Pre-IPO employee equity compensation plan checklist 2025

It’s vital for privately-owned businesses on their Initial Public Offering (IPO) journey to understand the range of changes that will apply once they go public – including how their employee equity compensation plans will be impacted.
 
The pre-IPO period can be viewed as a time to prepare for change and regardless of the type of liquidity event being planned a drawing a line in the sand. Companies already offering equity awards will need to review their offerings to ensure they meet the new regulations and requirements they’ll be subject to as public companies, while those who didn’t previously offer employee equity compensation may use the transition period as an opportunity to introduce a plan for the first time.

It’s worth noting that private companies tend to have more leeway to act quickly on equity compensation decision than public companies. Private companies generally having less stakeholders or board approvals to get sign-off from before making changes, so for some pre-IPO companies it might make sense to make the most of that advantage prior to flotation if looking to change or introduce an equity plan.
Whatever your circumstances, you need to give yourself enough time to do what needs to be done to ensure that your employee equity compensation strategy is where it needs to be by the time floatation day comes around.

With that in mind, we present here a checklist that highlights many of the key issues/challenges your company may face when introducing or modifying employee equity compensation plans in the run-up to your IPO:

Consultation: If senior company personnel have never been through an IPO, the first step in the process may well be to seek out external consultants. This could involve talking to an equity compensation specialist such as J.P. Morgan Workplace Solutions about how best to proceed.
 
Plan design & objectives: Plan design and your desired objectives should be considered together, as you need to be clear on the latter before making any definitive decisions on the former. Some objectives are near universal in that companies will almost always want to recognize and reward high performance, while equity plans are also typically used to encourage retention of key personnel and to help companies stand out from competitors when it comes to recruitment.
 
In the context of an upcoming IPO, introducing new plans and/or broadening eligibility criteria for participation in existing plans can also be about fostering morale. The prospect of major change can create anxiety and uncertainty among employees; however, introducing new equity-based initiatives in conjunction with an IPO can help to flip that script and instead generate positive sentiment and excitement among your people.
 
Reporting obligations: It is not uncommon for pre-IPO companies to adopt plans that include more people are they move towards flotation. In turn, this will create more complex reporting demands. It’s also true that reporting and disclosure requirements tend to be more demanding for public companies than their private counterparts. This is just one reason to consider using software that automates your processes. More on this later. For now, the key point to understand is that you will most likely face a more rigorous reporting regime post-IPO and must be in a position to deliver on those obligations.
 
Cap table: Having a clean cap table is vital as you move through the pre-IPO journey. You need to know that you can trust your official record of ownership. Some companies at the outset choose to maintain a manual record of investment and changes in ownership holdings. However, over time and following multiple rounds of investment these tend to become increasingly complex. Somewhere along the way, and certainly by the time you are actively in the pre-IPO phase, the detail required in the cap table will often have gone beyond the point where it can manually be maintained accurately with confidence. A more efficient solution is to use software specifically designed for the task, and ideally to do so as early in the life of the company as possible. You wouldn’t expect your payroll team to use an excel file rather than software. Managing your employee equity plan should be no different.
 
Communication: The idea that going public and the changes that could accompany that might cause anxiety/insecurity among employees was touched on above. This makes it all the more important that companies go out of their way to keep people informed about what is being proposed and what those future changes might involve.
 
Just as important will be to communicate very clearly to your people on how going public will impact on the company’s equity compensation strategy, whether that involves alterations to existing plans and/or the introduction of new plans.
 
If what is being proposed has the chance to ultimately prove beneficial to eligible employees, then it is vital that you go out of your way to clearly explain that to them. Doing so can go a long way towards nipping unnecessary anxiety in the bud and helping employees focus on giving their best efforts to the company.
 
Administration: The pre-IPO period is a logical time to review all aspects of your equity compensation regime. One such point to look at is administration. How do you administer your existing plans? Do you attempt to keep track of all relevant information manually via a spreadsheet? Much as with the point made about cap tables earlier, that might have made sense early in the life of the business, but over time the requirements will become more demanding, and even if you continue to maintain accurate records, when you rely on manual entry, the possibility of human error is ever-present and accuracy cannot be guaranteed.

Your equity compensation arrangements will by necessity change as you move from private to public and ensuring that you stay on top of all associated issues can be incredibly demanding and it’s essential that you’re prepared.

At J.P. Morgan Workplace Solutions we provide businesses of all sizes with an all-in-one equity compensation management solution. We handle all the equity award administration so you’ve got more time to focus on your company’s journey. Get in touch today to find out how we could assist with equity design and management at this crucial time.