Employee Stock Option Plan (‘ESOP’): The key to engagement and growth within your company

What are ESOP’s and why are they relevant?

In today’s competitive labor market, attracting and retaining talent is a major challenge for many companies. An alternative to traditional remuneration and incentive methods are subscription rights, also known as ESOP’s (Stock Options). These rights not only offer employees a financial stake in the company but also strengthen their commitment and motivation. Start-ups and scale-ups often use this form of remuneration, because they clearly have fewer opportunities to compete with higher salaries or other traditional employment benefits.

The company (employer or client) may grant subscription rights to its directors, employees, self-employed persons, or other associates who contribute to the company’s success. These rights entitle the holders to acquire shares in the company in the future. Often, these shares can only be acquired once certain conditions have been met, such as achieving predetermined objectives within the professional relationship. A common condition is that the beneficiary remains employed by the company for a certain period after the subscription right has been granted.

Typically, these subscription rights are granted within a broader framework, often laid down in a so-called subscription rights plan, also known as “ESOP” (Employee Stock Option Plan). This plan offers a structured way to involve employees in the ownership and success of the company.

Important considerations when implementing an ESOP

• Legal and tax considerations: It is essential to be well informed about the legal and tax considerations surrounding an ESOP. In Belgium, specific rules and benefits apply to subscription rights. On the one hand, there are the general corporate law provisions that apply to the issue of subscription rights. On the other hand, an ESOP must meet certain conditions in order to qualify for the favorable tax regime.  
• Communication and transparency: Successful implementation of an ESOP requires clear and open communication. Transparency prevents misunderstandings and ensures that employees feel valued and involved.
• Determining the option price: Determining the option price is a crucial step in setting up an ESOP. This price determines the amount at which employees can buy their shares and therefore has a direct impact on the attractiveness of the plan. The option price is often based on the current market value of the shares. An option price that is too high may make it unattractive for employees to exercise their rights, while a price that is too low may entail tax risks and possibly lead to undesirable dilution for existing shareholder.

Ready to retain talent and key employees with an ESOP?

A well-designed ESOP can make all the difference in attracting, motivating and retaining valuable employees within your company. Would you like to know how to strategically implement a subscription rights plan and how it can contribute to sustainable growth and engagement within your organization?Contact one of our experts for tailored advice and discover how an ESOP can strengthen your company.