Employee incentive arrangements are one of the main concerns of any growing business. Among a variety of incentive tools, one of the most effective and internationally recognised measure is the Employee Stock Ownership Program (ESOP).
ESOP is a program allowing company employees to acquire company shares and become shareholders during (in some circumstances also after) the period of their employment. Depending on the project, the participation of company employees can be direct or indirect, through a separately established SPV (Special Purpose Vehicle).
ESOPs promote the development of the company's internal management system through diversifying its shareholders; supplementing them with professionals in the relevant sector and those who have made and will continue to make significant contributions to the company’s development in the future. The main principle which makes up the program is the alignment of the working goals of the participants with the strategic goals of the company, making them more motivated in obtaining common benefits. ESOPs are an integral part of the corporate good governance and the company’s systems of remuneration, rewards and promotions, human resources, and talent management.
The relationship between program participants and the company’s shareholders, including matters pertaining to allocation, is usually regulated by the Share Purchase Agreements and Shareholders' Agreement.
Sophisticated versions of ESOPs are customarily managed by an SPV, a legal entity established by the company shareholders to implement and fully control the ESOP and which maintains the list of participants addresses company notices, and other official communications to the participants. In this model, the qualifying employees will be able to purchase the SPV’s shares at the market value. Shareholder-employees will be represented through an SPV in the company's capital, and at the same time will enjoy the rights of a shareholder.
In proposing different ESOP models, regulatory compliance issues of specific industries (finance, retail, telecommunication) are considered.
ESOP Set-up Toolkit
Based on our extensive experience, international best practices and expertise in the field of corporate law and corporate governance our team can offer a comprehensive guideline on how to set up and evaluate ESOPs in your company and which formats will work the best for the intended purposes.
This guideline will cover:
corporate governance and management issues tackled by ESOPs (HR, Talent Management and Acquisition, Remuneration and Rewards);
elements of an effective ESOPs;
general models of ESOPs and best practices;
comparison of direct and indirect participation and participation through the issuance of additional shares;
ESOPs and corporate restructuring;
ESOPs and labor right conflicts;
minority shareholders' rights protection;
ESOP and regulatory compliance;
ESOP evaluation checklist and questionnaire.
Evaluation of Existing ESOP
In case of already implemented ESOPs, our team can get acquainted with the implemented program and identify gaps or suggest amendments to improve the overall security, efficiency and effectiveness of the program.
ESOP Financial Projections
RVS Legal Dimension in cooperation with a licensed investment company 'Dimension Investments' can also make financial projections related to the ESOP program including but not limited to the calculation of expected dividends, comparison with the already existent bonus system, and so on to determine whether the proposed incentives are attractive and reasonable. For other financial services, please visit the Dimension Investments website here.