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There are two basic types of equity incentives used by start-up companies - shares options and restricted shares. Shares options come in two forms - incentive shares options and non-qualified shares options. These basic forms of incentives differ primarily in the tax consequences to the recipient.

Restricted Shares

Restricted shares are the shares that are held outright, but subject to the company's option to buy back unvested shares at the time the employee leaves the company.

Equity Incentive Ranges

Companies often ask us to comment on what percentage ownership interest would be appropriate for an executive hire. There are certain ranges that are recognized as “market”:
• CEO - six to ten percent;
• VP Technology - two to six percent;
• VP Marketing - one to three percent;
• VP Business Development - one to three percent; and
• VP Finance and Operations one-half of one percent to two percent.

These numbers are determined as of the closing of the first VC round, and are not subject to dilution by the grant of options out of the employee pool. For example, if there is a 20 percent employee pool, a CTO receiving five percent would be granted options or receive restricted stock for 25 percent of the shares in the employee pool.