In a fixed equity pool, a team member is allocated a specified amount of equity in a pool which, in turn, also has a fixed allotment of shares. For example, a team member who is part of a fixed equity pool of 10,000 shares may be allocated 30% of that pool or 3,000 shares for his/her equity plan. The company could create as many fixed equity pools as is needed as long as it does not exceed the company’s total capitalization, i.e., the total number of company shares it can legally issue. For example, if a company is authorized by its incorporation document to issue 100,000 shares, it can create 4 fixed equity pools with an allotment of 25,000 shares each.
In a dynamic equity pool, the equity earned would depend upon the value of a team member’s work and contribution as measured by equity points. The more equity points a team member has, the larger the share of equity in a pool that he/she will get once the pool achieves a specified landmark event (e.g., when the company is able to do an IPO) and a final distribution is made. The equity reward is dynamic because it can vary and fluctuate depending on how many equity points a team member has vis-a-vis the total points in a given pool. Like fixed equity pools, a company can create as many dynamic equity pools as needed provided that the allowed capitalization is not exceeded.