On the other hand, company performance goals such as meeting certain revenue or earnings targets is often not clearly related to things an individual employee can control. By comparison, an incentive plan linked to the individual employee's performance will definitely give the employee the sense that his individual efforts will yield benefits through the equity program. On the other hand, employees may make no effort to help fellow employees or otherwise contribute to the company if it's not going to yield benefits from the equity incentive plan. A plan that is tied to the employee's department or business unit may be a good middle ground between these two approaches. Performance-based restrictions, therefore, are limited to equity programs based on stock options, direct stock grants, direct stock purchase offers and simulated equity plans.
Most people are by now familiar with stock option plans and how they work.
Direct stock grants are somewhat less familiar, but they are one of the simplest and most flexible ways to provide employees with a stake in your company's future growth. Non-restrictive stock grants are simply an outright award of company stock. A restricted stock grant is subject to conditions, such as requiring the employee to stay with the company over a period of years or meeting specific performance criteria before realizing the full benefit of the award. These vesting restrictions can either end all at once or in installments over a period of time with provisions for accelerating vesting for meeting specific performance targets. Direct stock purchase plans give employees the opportunity to buy stock in their company.