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ESOP: Employee benefit program of the future | weBlog

April 28, 2023

ESOP or Employee share option plan is becoming an increasingly popular tool for remuneration and engaging employees even in our region. ESOPs are also commonly referred to as employee stock ownership plans or employee benefit programs where company founders grant a portion of shares to their key employees. The sense of ownership vastly impacts the employees’ participation in the company’s development, while it also increases their motivation and productivity.

Regardless of how simple the idea seems, ESOP is very complex. Setting it up can be costly since it requires professional advisors and lawyers, and a bit difficult to manage due to complicated spreadsheets. Nevertheless, we accepted the challenge and developed an inexpensive and smart solution based on the Dutch model with international applicability.

What is ESOP and how is it used by companies?

In simple terms, ESOP is a benefit program that allows employees to obtain options, i.e., the right to buy or receive a certain company share percentage, after a certain period of work.

It is common in some European countries for employees to be liable for taxable income resulting from the use of options, including their exchange for stocks or shares. For this reason, some start-ups rather choose to issue the phantom shares instead. Phantom shares are not real stocks or shares issued to employees, but a possible increase in a start-up value (or earned profit share) paid to employees as cash benefits.

However, the payment of the benefit is subject to taxes which we all know from taxing regular wages. We have tried to solve this with our in-house solution based on so-called “exercise period” (a period when an employee can buy stocks or shares) and we came with a tax-friendly, fully automated and digitalized software that can speed up the whole process. Employees can exercise their right once the vesting period ends or when a specific milestone or event occurs – that is, at the time when they receive the real income.

The advantages of employee benefit programs

At Accace, we believe that the future of employee benefits lies in the employee equity programs (EEP). Employee stock option plans are benefit systems that allow employees to engage in the company’s operations, increase its profit and act like partners of the company they work for.

However, establishing ESOP programs as a form of EEP tends to be tricky both financially and timewise. Hence, we developed a solution disrupting the status quo. Stock option plans are no longer complicated: we can save your company’s money and time with our tax-friendly and automated ESOP platform. All in compliance with the legislation across Europe.

Automating the employee stock option experience

As a founder wishing to grant shares to employees, you can now establish ESOP plans according to your desire with just a few clicks. Forget lawyers or consultants, you can do it even without legal or economics background. Invite your co-founders or colleagues to join your option pool, verify them and sign documents online within 30 minutes. Access electronic documents from the archive and see up-to-date information.

New investor on the horizon? No worries, just update your ESOP plan and the documentation when investors step in. You can also set up your vesting period and calculate the target share of an employee in the company after the vesting period. The greatest benefit so far is that the founders don’t have to give up their shares on behalf of employees. They can issue digital certificates that allow to tax employees’ incomes as if they held shares or stocks directly.

We kept in mind one more fact: that all these processes come up with an extra administrative burden. Nonetheless, using digital certificates allows all alterations to be made without changing a single thing in the commercial registers or securities depositories.

ESOP based on the Dutch model

The solution is for everybody interested in the fair and motivational remuneration of founders and employees – from start-ups in pre-seed and seed phase up to SMEs searching for inexpensive tool. Specifically designed for limited liability companies such as BV, GmbH, s.r.o., Sp. z o.o., kft, etc. With few exemptions, we can cover several European countries such as the Netherlands, the Czech Republic, Slovakia, Hungary or Romania.

If you do your own research, you will find some already established solutions on the market. However, only a few platforms offer effective management of a so-called “captable”, i.e., keeping records of the company’s shareholders. Some tools may have wider features, but they are specifically designed for Anglo-Saxon systems or joint stock companies. In Europe, the majority of companies and start-ups are limited liability companies, which makes the existing platforms off base.

Since we are cooperating with international start-ups and SMEs across Europe, we are familiar with the issues they are facing. Through careful listening, our in-house experts constantly search for ideas that can improve our clients’ and partners’ lives. Optimize and automate your ESOP experience with us – get in touch and find out how we can help.

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