Silicon Valley Business School
New Employee Incentives (Warm Restart)
A Step in a Management Maneuver in the Mezzanine Stage of Startup Development

Creating new employee incentives is a step in the process of restarting the Company. The Warm Restart is designed to boost momentum by shedding excess baggage. Stock options are not much of an incentive if they're worthless and the employee knows that it's unlikely that they'll ever have any value. This is often the case after the company has closed several rounds of funding, as the employees have to stand in line behind the external investors when the company is sold. The employees get to share in the remainder after the investors have had first pick of the spoils - in many cases, this means the employees coming away with nothing. As a result, the stock options held by employees in many private technology companies are absolutely worthless - whether they're vested or not. To provide an incentive to employees, the shareholders often agree to a carve out for the active common stockholders. A percentage of the proceeds from the sale of the company, say 10%, is given to management and the currently active employees. What this means is that the employees effectively push in line ahead of the investors when it comes to dividing up the spoils of a company sale. This can provide a major incentive for employees and can be instrumental in boosting momentum. In addition to injecting some potential value in the stock options, a warm restart may be a good time to review the other benefits and employee incentives including bonus plans and sales commissions.

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