Equity compensation is one of the most powerful tools Israeli startups have for attracting top talent. Here's everything you need to know.
Types of Equity Compensation
For US Employees
- Incentive Stock Options (ISOs): Tax-advantaged, only for US employees
- Non-Qualified Stock Options (NSOs): Simpler but less tax-efficient
- Restricted Stock Units (RSUs): Shares that vest over time
For Israeli Employees
- Section 102 Capital Gains Track: Most tax-efficient. 25% capital gains vs. up to 50% ordinary income. Requires 24-month trustee holding period.
- Section 102 Ordinary Income Track: Company gets a tax deduction.
- Section 3(i) Options: No trustee, fully taxed as ordinary income.
Setting Up Your Equity Plan
- Determine option pool: Typically 10-20% of shares
- Get a 409A valuation: Sets exercise price, required by US tax law
- Adopt equity incentive plan: Including Section 102 sub-plan
- File with the ITA: Wait 30 days before first grant
- Appoint a trustee: ITA-approved trustee for Section 102
Standard Vesting
- 4-year vesting with 1-year cliff
- 25% after year one, monthly thereafter
Common Mistakes
- Not filing Section 102 before granting options
- Missing the 409A valuation
- Not updating 409A after fundraising
How Aleph Accounting Helps
End-to-end support: 409A valuations, plan design, Section 102 filing, trustee coordination, and cap table management.
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