Tracey S. Bernstein, Esq


Instead of providing equity to executives in the former of options and restricted stock that vest over time, some employers ask their executives to “put their money where their mouth is” by making an equity investment in the company.  Given the current state of our economy, and the grumblings from Main Street about executive pay, this seems like a reasonable way to tie compensation to performance.

On the upside, by investing in the company an executive will feel like he/she has a personal stake in the company’s future while not having the pressure of meeting certain vesting dates.  On the downside, the executive will not have the same ability or resources to perform due diligence into the investment risk they are being asked to take on.  In addition, employees may not have the financial ability to afford the equity stake being offered, and therefore have to to take less equity or a company loan in order to accept the position.  Moreover, most stock plans give the company a right to repurchase your equity interest if your relationship ends, and at various prices depending on the reason your employment terminated.