---
title: "What Is Equity Incentive Plan?"
term: "Equity Incentive Plan"
description: "An equity incentive plan is the board-approved program authorizing stock options, RSUs, and other equity awards to employees, directors, and advisors within a defined share reserve."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/equity-incentive-plan
---

# What Is Equity Incentive Plan?

> An equity incentive plan is the board-approved program authorizing stock options, RSUs, and other equity awards to employees, directors, and advisors within a defined share reserve.

**Equity incentive plan** (stock plan) is the formal framework—typically a 2010 Stock Plan or similar—under which a company grants equity compensation from a reserved share pool.

## How it works

The board and shareholders adopt the plan, setting:

- **Share reserve** (e.g., 5M shares or percentage of fully diluted)
- Eligible participants (employees, directors, advisors, consultants)
- Types of awards (ISOs, NSOs, RSUs, restricted stock)
- Administration by board or compensation committee
- Change-of-control acceleration rules (single vs double trigger)

Individual **grant agreements** reference the plan. Each grant specifies amount, strike price (from 409A), vesting schedule, and post-termination exercise windows.

At funding, investors often require increasing the plan reserve or confirming sufficient unallocated shares in the [employee option pool](/glossary/employee-option-pool).

## Why it matters

- **Founders:** Cannot legally grant options without an approved plan. Setup early with counsel—retroactive fixes are painful and tax-risky.
- **Investors:** Term sheets include plan representations. Missing 409A or plan capacity blocks closing.
- **Employees:** Plan terms govern what happens in acquisition—acceleration, cash-out vs assumption of awards.

## Common mistake

Granting options from a verbal promise before the plan exists. Fixes require expensive legal cleanup and may reset strike prices unfavorably for employees.

## Related ideas

- [Employee Option Pool](/glossary/employee-option-pool) — shares sourced from plan
- 409A valuation — strike price requirement (U.S.)
- [EMI Options](/glossary/emi-options) — UK parallel for tax-qualified grants
- [Early Exercise](/glossary/early-exercise) — if plan allows

## FAQ

### What is Equity Incentive Plan in simple terms?

The legal document and share bucket that lets the company grant stock options and RSUs to the team—approved by board and usually shareholders.

### Why does Equity Incentive Plan matter?

Grants without a plan are invalid. Investors check plan size, evergreen refresh rules, and whether enough shares remain for post-close hiring.


---
Source: https://venturecapitaltracker.com/glossary/equity-incentive-plan