In today’s business environment, attracting and retaining employees has become a significant challenge. This is true for startups, SMEs, and large corporations alike. One effective strategy to win the “War for Talent” is to offer employees participation in the company and its success, beyond mere monetary compensation.

This blog post outlines the essential models that have proven effective in practice:

1. Genuine employee participation

Through genuine employee participation (Employee Stock Option Plans, ESOPs), employees receive an equity interest in the company.

This participation can occur either directly through the transfer of existing shares or be created via a capital increase. Alternatively, an option for future participation can be granted, which can be exercised at a specified time, such as during an exit event (e.g., sale or IPO).

As shareholders, employees then hold not only a share in profits and liquidation proceeds but also, importantly, rights to information and participation.

To avoid decision-making delays or blockages, Liechtenstein-based public limited companies can issue so-called participation certificates. These certificates entitle the holders to a share of profits and liquidation proceeds but do not carry voting rights, effectively functioning as non-voting shares. A Liechtenstein stock corporation, for example.

2. Virtual employee participation

Virtual employee participation (Virtual Stock Option Plans, VSOPs or Phantom Stock Option Plans, PSOPs) is based on a contractual agreement between the company and its employees.

In this arrangement, employees do not receive an equity interest and are therefore not shareholders of the company. Consequently, they do not hold shareholder rights.

The advantage of a VSOP agreements lies in its flexibility, while economically achieving essentially the same outcome for employees as an ESOP. The agreement can be largely freely designed and tailored to specific needs. Employees participate in the company’s success upon certain events.

3. Conclusion

Employee participation models have proven effective both for recruiting new employees and retaining existing ones. Depending on whether employees are granted genuine or virtual participation, they are accorded different rights. To avoid potential conflicts or ambiguities, clear communication and a legally sound (ESOP or VSOP) participation agreement are crucial.

Get started with us right now and contact us at office@isp.law or use our fully automated booking tool to make an appointment directly for an initial meeting at www.isp.law/termin-buchen/ and let’s create a solid foundation for your employee participation together.