In the early days of your company hiring and retaining quality employees and keeping founders engaged and involved is often a challenge. The startup requires high level talent to grow but doesn’t have enough capital yet to keep them. One way in which to retain these employees and continue to incentivise founders is with a Vesting Deed.
WHAT DOES IT COVER?
A Vesting Deed is a document which sets out a scheme called ‘share vesting’. Individuals can earn shares in the company in reward for loyalty and meeting certain milestones or metrics. They essentially ‘earn’ shares in the company through loyalty or high performance. Typically shares are given to (or ‘vested’) in the employee or co-founder at pre-determined points in time. For example 25% of their shares after a year, the next 25% after two years, and so on. If the employee or co-founder leaves before the shares have been fully vested in them, the deed ensures that they must sell back the unvested shares at cost price. This is probably going to be a great deal for your company as it has most likely grown in value in this time.
WHY IS THIS IMPORTANT?
Signing a Vesting Deed encourages loyalty in your employees or fellow directors. If they stay at the company through its formative, perhaps difficult, years they are rewarded with a share in it. This also results in much needed stability for your startup. Additionally, it encourages good performance in your staff. The more the company grows, the more their share is worth. A vesting scheme is a great way to retain quality individuals on your team. It’s important that it’s controlled by a well-drafted Vesting Deed. This will make sure everyone’s on the same page and avoid headaches in the future.