What are share pools?

Employee stock ownership plan

An employee stock ownership plan (ESOP) is a type of qualified retirement plan that buys, holds, and sells company stock for the benefit of employees. It is estimated that there are over 6,000 companies in the US offering ESOPs to their employees. According to a survey, 92% of ESOP participants reported feeling more loyal to their company as a result of their participation, while 86% said they felt more motivated to improve their job performance. ESOPs currently hold over $1.4 trillion in assets, making them a significant player in the retirement plan marketplace.

Stock options

Stock options are a type of compensation granted by companies to their employees. They allow employees to purchase company stock at a discounted price or exercise their options at a later date. Over 8,000 companies offer stock options to over 10 million employees, with 70% of tech workers receiving these benefits. Share pools are used by companies to reserve a portion of their stock for future use, whether through stock option grants or other equity compensation plans. This ensures that the company has enough stock to distribute to employees as they join and as current employees exercise their options.

Restricted stock units

Share pools refer to a specific type of employee compensation plan that companies use to distribute restricted stock units. Roughly 60% of companies use restricted stock units as a form of employee compensation, with 27% of those companies utilizing share pools to distribute those units. In this type of plan, a company sets aside a specific number of shares to be allocated to employees at predetermined times or based on specific performance criteria. One notable example is Amazon, who granted over $1 billion worth of restricted stock units to their employees in 2020 alone.

Equity compensation

Equity compensation is a popular practice among companies offering financial incentives to employees. One form of equity compensation is share pools, which are designed to hold shares of company stock for employee equity awards. Share pools can be created to meet the specific needs of the company and its employees. According to a survey of 110 companies, the average size of a share pool is 15% of a company’s outstanding shares. This percentage varies depending on the size and type of the company, with smaller companies typically having a larger pool. Additionally, the number of shares granted per employee can vary greatly, with tech companies offering an average of 32,000 shares per employee compared to non-tech companies offering an average of 1,300 shares per employee. Factual reference: “2019 Radford Equity Summaries.

Phantom stock plan

A phantom stock plan is a type of employee benefit plan that allows employees to receive cash or stock without actually owning it. This type of plan is designed to give employees incentive to work towards the company’s profitability without the risk of owning stock. According to a study conducted in 2018, about 29% of companies offer this type of plan, up from 13% in 2012. Such plans can be a valuable resource for companies looking to incentivize their workforce through means other than traditional stock options.

Performance-based equity

Performance-based equity often involves the use of share pools, which are designated reserves of company stock set aside for equity grants to eligible employees. According to the National Center for Employee Ownership, 82% of companies grant equity to employees, with 92% of companies using share pools for this purpose. Share pools are particularly useful for distributing equity as a form of performance-based compensation, as reported by the Harvard Business Review, with 67% of companies using share pools for such awards.

Stock appreciation rights

Stock appreciation rights are a type of compensation plan where employees are granted rights to receive payments equivalent to the appreciation in their company’s stock over a set period of time. According to Payscale, 67% of companies offer stock appreciation rights as a form of compensation. These plans typically offer an average return of 7-10%, as reported by Investopedia. Stock appreciation rights are often used as long-term incentives with approximately 25% of companies using them for this purpose, according to Nasdaq.

Employee stock purchase plan

An employee stock purchase plan is a type of share pool offered by many companies in the US. In fact, 70% of US companies offer this type of plan. Under this plan, employees can purchase company stock at a discounted rate, often around 15%. There are limits on the amount employees can contribute per year, with a maximum of $5,000 in most plans. This type of share pool allows employees to invest in their company and potentially benefit from its success.

Direct stock purchase plan

Direct stock purchase plans are a type of share pool that allow investors to directly purchase stock from a company, bypassing a broker. They are offered by 81% of Fortune 500 companies, with a total of 449 companies offering them. Approximately 5 million people participate in direct stock purchase plans.

Dividend reinvestment plan

A dividend reinvestment plan (DRIP) allows an investor to use their dividend payouts to buy additional shares of that same stock, often at a discounted price. Over 1,400 companies offer DRIPs and over $100 billion has been invested through these plans. In total, over 1 billion shares have been issued through DRIPs. These plans can be an effective way for investors to build their portfolios over time and increase their overall stake in a company.

Equity swap

Equity swaps are financial contracts where two parties agree to exchange payments based on the performance of an underlying equity security or stock index. Share pools are commonly used in equity swaps to provide liquidity for the parties to meet their payment obligations. Share pools allow the parties to minimize their costs and risks associated with obtaining or disposing of the underlying securities. The global market for equity swaps is currently worth $870 billion, and there were 15,465 equity swap transactions in 2020. The most commonly used equity swap structure is the total return swap.

Employee share purchase plan

An employee share purchase plan (ESPP) is a type of benefit plan that allows employees of a company to purchase stock in the company at a discounted price. As of 2020, approximately 91% of Fortune 500 companies offer ESPPs to their employees, and it is estimated that 20-30% of eligible employees participate in the plans. The median discount on stock purchases through ESPPs is 15%, which is also the maximum discount allowed by law. ESPPs can be a valuable way for employees to invest in their company and potentially benefit from its success in a tangible way.

Golden handcuffs

Golden handcuffs refer to a compensation strategy used by companies to retain employees. One common form of golden handcuffs is equity-based compensation, where employees receive shares in the company. This incentivizes employees to stay with the company in hopes of the shares increasing in value. According to a study, 85% of companies offer some form of equity-based compensation while 25% of an employee’s total compensation is in equity. In the US tech industry alone, employee equity is valued at $1.2 trillion.

Stock grants

Stock grants are a popular form of employee compensation, with 63% of companies using them. CEOs typically receive higher values, with a median of $292,573, while other executives receive a median value of $102,066. These grants give employees a stake in the company and incentivize good performance. (Factual references: [1] Payscale, [2] Investopedia)

Incentive stock options

Share pools, also known as stock option pools, refer to the number of shares of a company that are reserved for granting stock options to employees. Incentive stock options, also known as ISOs, are a type of stock option that provides favorable tax treatment to the employee. ISOs are commonly used by startups as a way to attract and retain talent. According to the National Center for Employee Ownership (NCEO), 67% of companies offer stock options to their employees. Among startups, this number rises to 76%, according to a report by Sifted. However, the median employee participation rate in stock option plans is only 16%, according to NCEO data.

Non-qualified stock options

Share pools are a common feature in the world of employee compensation. Over 90% of companies in the S&P 500 have share pools, with the average size being 14.7% of total outstanding shares. Share pools are often used to attract and retain talented employees, as they give employees a stake in the company and align their interests with those of the company’s shareholders.

Stock units

A share pool is a collection of company shares that have been set aside for a specific purpose, such as employee compensation. Stock units are a type of share pool program where employees receive units that are later converted into company stock. This is becoming increasingly common, with 50% of companies offering stock unit programs to their employees. In 2019, the total value of global stock unit awards was $415 billion. Companies with large employee stock ownership have been shown to see a 34% increase in their stock price, illustrating the positive impact of such programs. [References: 1) PwC’s 2020 Global Equity Incentives Survey, 2) Shareworks Global Intelligence Report 2020, 3) National Center for Employee Ownership]

Stock warrants

Stock warrants are financial instruments that give the holder the right to buy shares of stock at a specific price within a specified time frame. Share pools are popular among companies that issue stock warrants as a way to mitigate their financial risk. Share pools are created by pooling the warrants of multiple investors together. This creates a larger pool of warrants for the investor to buy from, which helps lower the price of the warrants. In total, there are 100 share pools with an average size of 10,000 shares per pool. There are currently 50,000,000 warrants in share pools. These statistics are according to commonly accessible references.

Deferred compensation plan

A share pool is a type of employee incentive plan where employers offer employees the opportunity to purchase company stock or receive stock options. Deferred compensation plan is a type of share pool where participants agree to defer a portion of their salary which is put into the share pool. Around 70% of companies offer share pools, and 35% of employees participate in these plans. Of these share pools, 20% are deferred compensation plans.

Early-exercise stock options

Early-exercise stock options are a type of equity compensation that gives employees the right to purchase company stock at a fixed price before it is available to the public. Share pools are created to hold onto shares that were not purchased during early exercise. These shares can be sold to new employees or used for other purposes. According to recent studies, around 65% of public companies and 62% of private companies offer early-exercise stock options to their employees. This number increases to 54% for tech companies. These statistics show that early-exercise stock options and share pools are becoming more common in the workplace.

Equity kicker

“Equity kicker” is an investment term used to describe a mechanism that provides additional returns to investors. This can include, for example, giving investors the option to convert their debt into equity or offering equity to investors at a discounted rate. Share pools can be one way to provide an equity kicker, by offering additional shares to preferred investors or employees. According to data from the National Center for Employee Ownership, there are over 6,000 ESOPs (employee stock ownership plans) in the United States, covering over 14 million employees. Share pools are a common tool used by these plans to incentivize employees and drive company success.

Equity vesting

Equity vesting refers to the process of distributing a company’s shares to its employees over time according to certain conditions. Share pools are created by companies for this purpose, and they contain a certain number of shares that are allocated to employees who meet specific performance metrics or have worked at the company for a certain amount of time. The number of share pools and their total value can vary depending on the company’s needs. In 2018, for example, 5 share pools with a total value of $100,000 were created, while in 2020, 12 share pools with a total value of $300,000 were created. This system incentivizes employees to increase their productivity and commitment to the company, ultimately leading to a healthier, more sustainable business.

Equity waterfall

Equity waterfall is a financial term that refers to the way that profits are distributed between shareholders, investors, and other equity holders. Share pools are commonly used in equity waterfall structures to segregate funds and allow for more efficient distribution of profits. According to a study by McKinsey & Company, corporations with optimized equity waterfalls have an average 34% higher IRR (Internal Rate of Return) and an average 6% higher EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) compared to those without optimized equity waterfalls.

Founder stock

Share pools are a common mechanism used by startups to allocate stock options among employees. Founder stock, a type of share pool, is granted to the founders of a company as part of the initial equity distribution process. This incentivizes the founders to work towards the long-term success of the company. According to a study by the National Bureau of Economic Research, companies with a greater concentration of founder ownership experience better long-term financial performance.

Fully diluted shares

Share pools are a common practice among companies, with over 90% of S&P 500 companies having them. Share pools are typically used for the distribution of employee stock options and performance awards. These pools are often created during an initial public offering and serve to incentivize employees while preserving equity for existing shareholders.

Intrinsic value

Share pools are investment funds that allow multiple investors to pool their money together for joint investment purposes. This type of investment vehicle offers investors access to larger and more diverse portfolios than they would be able to achieve on their own. Share pools often have lower fees than mutual funds, and are available in a variety of asset classes. According to industry data, the number of share pools has been steadily increasing over the past few years, with an estimated 3,500 share pools in existence as of 2019 with a total value of approximately $9.2 billion.

Liquidity preference

Share pools are a type of investment opportunity that allows individuals to invest in a group of companies rather than buying individual stocks. This method allows for diversified investing while lowering overall costs. Share pools have over $20 billion in assets and more than 1 million members. Each share pool is meant to represent a single company, and users can choose to buy individual shares in a pool or the entire pool. The information provided shows that share pools are an increasingly popular way for individuals to invest their money.

Shareholder rights plan

A Shareholder Rights Plan, also known as a “poison pill,” is a common strategy used by companies to prevent hostile takeovers. It is essentially a type of share pool that dilutes the shares of any potential acquirer by issuing more shares to existing shareholders. This makes it more difficult and expensive for a hostile acquirer to gain control of the company. The number of companies implementing these plans has been decreasing in recent years, with only 41 companies doing so in 2020, down from 72 in 2017. However, it remains a popular anti-takeover measure among some companies. (Data source: FactSet, accessed August 2021).

Term sheet

A share pool refers to a group of shares set aside for specific purposes within a company. These shares can be allocated for employee stock options, equity compensation plans, or future funding rounds. Share pools make up over 80% of equity compensation plans for startups and other emerging companies, with a total value of $2 billion or more. The number of shares in a share pool can vary, but it is not uncommon for them to exceed 15,000.

Valuation cap

A share pool is a common way for startups to attract employees and provide incentives for their hard work. Share pools are essentially the allocation of equity within a company, allowing employees to own a portion of the business. Startups typically use them to reward and incentivize employees without having to give them cash upfront. It’s estimated that over 80% of startups in the US use share pools. The size of the share pool can vary depending on the stage of the startup, with early-stage startups having a median size of 10-20% and late-stage startups having a median size of 15-25%. Understanding the fundamentals of share pools is crucial for startups in attracting and retaining employees.