Stock options: unlocking your employees entrepreneurial potential

A recent survey by Sifted has revealed that over a quarter of European startup employees believe their stock options will enable them to launch their own businesses in the future, highlighting the growing sense of optimism and entrepreneurial ambition within the EU’s startup ecosystem. 

Not all employees share that optimism as the survey also highlights that nearly one-third of startup employees are sceptical about the financial return of their stock options, expecting them to be worthless or yield minimal gains.

A notable issue highlighted by this survey is the lack of understanding among employees regarding the value and realisation of their stock options. Over 40% of respondents said they were unaware of their options’ worth, and nearly 45% have not received guidance on how to exercise them. This gap in knowledge is crucial, as informed employees are better positioned to make strategic decisions about their financial future and if employees don’t understand their options, the retention and motivation benefits of stock options are reduced.

Partner and Head of Employee Share Schemes, Samantha Lenox, says:

Companies are focusing more on the importance of communicating the financial benefit to employees of their options. This can be challenging because of commercial and valuation sensitivities, but communicating with your employees some of the financial information can improve the effectiveness of stock option schemes.

Stock options can be a powerful tool when attracting and retaining talent, with the survey finding that 67% of employees with stock options would not have joined their startup without this incentive.

As startups navigate growth, leveraging stock options effectively can be crucial in building a dedicated and motivated workforce.

How do I set up an employee share scheme for my company?

Employee share schemes and stock options are an effective way to attract, retain, and incentivise employees by aligning their interests with those of shareholders.

Establishing a scheme can be intricate and time-consuming, potentially distracting you from managing your business. Additionally, errors in its design can lead to additional tax liabilities for both your company and employees, which will become bigger issues as your business grows in value.

To ensure your employee share option plan meets your commercial objectives, adapts to future company changes, maximises the many tax benefits, and protects your company and shareholders, careful planning and expert legal advice are essential.

If you're looking to implement a share option plan and need legal advice, contact our expert team of employee share scheme solicitors via 0800 689 1800, or by completing the enquiry form below.

If you’d like to find out more about how employee share schemes can benefit both your employees and your business, watch our free webinar where we delve into the various types of employee share schemes and their numerous benefits.