Equity Compensation for Companies That Never Go Public

What If Your Company Never Plans to Go Public?

For decades, equity compensation in private companies has been designed around a single, often unspoken assumption: eventually, the company will go public. Stock options vest with IPO timelines in mind. Plan documents assume public-company liquidity. Employee expectations are shaped by stories of ringing the bell on the New York Stock Exchange or the Nasdaq.

That assumption is no longer universal, and in many industries, it may no longer be realistic.

An increasing number of private companies are choosing to remain private indefinitely. Others recognize that while an IPO is possible, it is neither inevitable nor desirable. Some are backed by long-term private equity or family ownership. Others generate consistent cash flow and prioritize control, flexibility, or mission over public market scrutiny.

For stock plan professionals, this shift raises a fundamental question:

What does equity compensation look like when there isn’t an IPO at the end of the journey?

This blog explores how private companies who never plan to go public should rethink equity strategy, plan design, governance, and communication—so equity remains a powerful incentive rather than a source of confusion or disappointment.

Why the IPO-Centric Equity Plan Model Is Breaking Down

Traditional equity compensation structures were built for companies on a predictable path:

• Grant stock options at low valuations
• Grow rapidly
• Go public
• Provide liquidity to employees

In this model, equity’s value is primarily future oriented. Employees accept stock options today in exchange for the promise of liquidity tomorrow.

However, when a company does not plan to go public—or cannot credibly commit to a liquidity event, this model begins to fail.

Common challenges include:

• Employees holding vested equity for years with no clear liquidity path
• Difficulty explaining value without a public share price
• Growing administrative complexity around option exercises and tax obligations
• Equity plans that incentivize short-term growth over sustainable profitability

For private companies that expect to remain private, equity must evolve from a lottery ticket into a long-term ownership and wealth-building tool.

Start With a Clear Ownership Philosophy

The most successful private companies begin with a clear answer to a deceptively simple question:

Why are we granting equity at all?

For IPO-bound companies, the answer is often: to align employees with growth until liquidity. For permanently private companies, the purpose may be different:

• Aligning employees with long-term cash flow and profitability
• Retaining critical talent in a competitive labor market
• Rewarding sustained performance rather than short-term valuation spikes
• Creating a culture of ownership without public market pressure

Once the purpose is defined, plan design decisions become much clearer.

Rethinking Equity for Private Companies: When Stock Options Fall Short

Stock options are popular because they are familiar—but familiarity does not always equal suitability.

In a permanently private company: 

• Options can lose perceived value if exercise leads to illiquid shares
• Employees may face tax obligations without liquidity
• Long exercise windows can create administrative and cap table complexity

This does not mean options are wrong—but they must be thoughtfully structured. In fact, more than ever private companies are exploring alternative or complementary awards, such as: 

• Restricted stock or restricted stock units (RSUs), with liquidity features
  More straightforward ownership, often paired with repurchase or redemption mechanics.
• Phantom equity or stock appreciation rights (SARs)
  Cash-settled instruments that mimic equity value without issuing shares.
• Profit interests or unit-based plans for LLCs
  Particularly effective where cash flow distributions matter more than exit valuation.
• Performance-based equity awards
  Tied to EBITDA, revenue milestones, or return thresholds rather than IPO timing.

Each one of those instruments carries different tax, accounting, and communication implications, making cross-functional alignment essential.

Liquidity Without an IPO: Designing Credible Paths

One of the most common employee concerns in private companies is simple:

 “How do I ever turn this equity into money?”

Permanently private companies must address this directly, or equity will lose its motivational impact. Some common liquidity approaches are: 

• Company-sponsored repurchase programs
  Periodic windows where the company buys back shares at fair market value.
• Secondary transactions
  Allowing controlled employee sales to approved investors.
• Dividend or distribution models
  Particularly effective for profitable companies that can share cash flow.
• Change-of-control-only liquidity, with transparency
  Acceptable if clearly communicated and consistently reinforced.

The key is not offering constant liquidity—but offering predictable, understandable liquidity rules.

Valuation as a Communication Challenge

Without a public share price, valuation becomes both a technical and emotional topic.

409A valuations are necessary for tax compliance, but they rarely tell the whole story. Employees often struggle to reconcile: 

• Growing revenue and profits
• Stable or slowly increasing 409A values
• The absence of a visible market 

Equity professionals play a critical role in translating valuation into understandable terms: 

• Explaining how private market discounts work
• Clarifying the difference between preferred and common equity
• Reinforcing the long-term nature of value creation 

Transparency—within appropriate legal boundaries—builds trust. 

Why Governance Matters More in Permanently Private Companies

Public companies rely on regulatory oversight and market discipline. Private companies must rely on governance.

As equity programs mature, permanent private companies should pay close attention to: 

• Board oversight of equity strategy
• Clear delegation of authority for grants and repurchases
• Consistent documentation and audit trails
• Cap table accuracy and scenario modeling

Without strong governance, equity plans can quietly accumulate risk—especially as headcount grows and early grants age.

Avoid the Accidental Public Company Trap

Ironically, some private companies that never plan to go public still inherit public-company complexity: 

• Large numbers of shareholders
• Poorly tracked option exercises
• Inconsistent grant terms
• Manual equity administration

This creates friction for finance, legal, HR, and employees alike.

Modern equity administration platforms—and disciplined processes—are no longer optional. They are essential infrastructure for managing complexity without losing strategic intent.

Why Equity Plan Communication Is the Most Underrated Lever 

Even the best-designed equity plan will fail if employees do not understand it.

Permanently private companies must: 

• Set expectations early and reinforce them often
• Clearly explain what equity is and what it is not
• Avoid language that implies inevitable IPO outcomes
• Train managers to discuss equity awards accurately

Equity should feel like a meaningful part of total rewards—not a confusing footnote.

Redefining Success Without an IPO

For companies that never go public, success looks different. 

Instead of asking: “How big could this be at IPO?” 

Equity professionals should ask: 

“How does our equity plan support sustainable growth, retention, and shared success over time?”

When designed thoughtfully, equity compensation can remain a powerful tool—even without the promise of a public market.

Final Thoughts for Stock Plan Professionals

The role of stock plan professionals is evolving. 

As more companies choose to stay private, NASPP members are uniquely positioned to lead the conversation—helping organizations: 

• Rethink legacy assumptions
• Designing equity plans aligned with long-term realities
• Balance motivation, fairness, and governance
• Turning permanent independence into a strategic advantage 

Equity does not require an IPO to be valuable. But it does require intention. 

For companies that never plan to go public, the question is no longer if equity awards still works—but how well it is designed to work without the bell-ringing moment.

For more resources for private companies, check out the Private Company Stock Plans section on NASPP.com