The public-to-private transition is a particularly hectic period for share plan administrators and related staff, as they grapple with the many equity incentive-related issues to be addressed prior to going public.
It can be a daunting and potentially overwhelming task, but the key to staying on track and getting the job done is best summed up in one word – preparedness.
6 Things to Do to Make your Equity Incentive Plans IPO Ready
Here is an overview of IPO share plan readiness considerations, designed to help make the process of pre IPO preparation as possible.
1. Your Existing Share Plans will Almost Certainly Change
Change is unavoidable, as the existing share plans are unlikely to comply with institutional investors’ guidelines. Therefore new plans will be needed.
Key changes in compensation plan occurring just before and after IPO events:
1. Adoption of new, more flexible equity incentive plans
2. Creation of broad-based employee stock purchase plans
3. Adjustments to executive officer compensation
Source: Around 400 listed IPOs in the technology and life sciences sectors
This will most likely be a demanding and time-consuming task, but you won’t be expected to have completed this task prior to going public. Despite the good news, it’s advantageous to introduce new plans prior to going public.
Why? Because after the company is listed, it will need to comply with the Listing Rules which usually will need more approval procedures that could cause some delays.
Early in the IPO preparation process, a company should perform due diligence on its existing share plans, with a view towards assessing to what extent those plans will be compatible with the transition from private to public. Then, the focus will turn to introduce new incentive plans.
2. When you Settle on New Award Types, Know the Details
Whether you merely modify existing plans or (as is more likely) introduce new shares plans, be sure to fully explore how your post-IPO share plans will need to be administered.
You may find yourself dealing with different taxable events, and also new arrangements for exercise or release. The information you need will be available, whether from peers, or legal and tax advisors.
It’s important to consider the various regulatory and corporate governance requirements that apply to listed companies, including institutional shareholder guidance, the Listing Rules, and Market Abuse Regulation.
Did you know?
It’s common for a listed company to design a suite of share plans, including a long-term incentive plan for senior employees, a deferred share bonus plan, together with an all employee plan, such as a Save As You Earn plan.
3. Ensure your Cap Table is Clean
is a necessity on the IPO journey
It is always important to maintain an orderly and clear cap table, but never more so than when embarking on the IPO process.
It is not unusual to have several versions of the company cap table floating around. However, having multiple copies in circulation is a recipe for disaster. An update added in one copy of the document will inevitably at some point not be added in another, thus creating a trail of inaccuracies, which needs to be avoided when preparing to go public.
To make your equity data accurate and IPO ready at any given moment, consider identifying a way to allow all equity data to be entered into one single place.
4. Develop a Document that Outlines an Award Framework
Companies should take the time during the pre IPO period to formulate a post IPO award philosophy that will inform how they compensate executives and other employees after flotation. One way to do this is to identify a peer group of companies to act as a benchmark.
How do these companies compensate employees? How does that compare to how your company currently compensates its employees?
The answers to these questions will guide you as you review your current equity compensation strategy. Having a well thought out strategy will help to boost employee engagement and thus, improve retention levels.
5. Devote Time and Effort to Communication and Education
The pre IPO period can be an anxious time for employees. Communicating early and often about the opportunities presented by going public will go a long way towards easing whatever concerns may exist.
Webinars and written presentations can help to answer the questions your employees will have about different aspects of the journey, including the likely impact on equity compensation arrangements.
It would be wise to consult with legal advisors on the content of whatever internal communications take place, as, while it is good to inform employees, you must consider the rules and restrictions in place around what IPO related information can be shared while the process is ongoing.
6. Don’t be afraid to ask for help
Going public will be one of the most important events in the life of your company and Global Shares can be there with you every step of the way.
We have a wealth of experience in the area of IPO preparation, and our experts are waiting to help you now – whether to answer your questions, to make you aware of questions you didn’t even know needed to be asked, or merely to advise you along the way.
Get in Touch for IPO Readiness for your Share Plans
Contact Global Shares now to set up an initial conversation about getting your equity incentive plans fit for an IPO.
Please Note: This publication contains general information only and J.P. Morgan Workplace Solutions is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. J.P. Morgan Workplace Solutions’ Insights is not a substitute for professional advice and should not be used as such. J.P. Morgan Workplace Solutions does not assume any liability for reliance on the information provided herein.
