An ESOP — whether based on the actual acquisition of shares/equity or subscription warrants in the company, or on “virtual” shares/equity — may prove to be an excellent solution if the entrepreneur implementing it is pursuing at least one of the following objectives:
- Engaging employees/collaborators in the success of the enterprise and fostering a sense of shared ownership between them and the company (“a shared business”);
- Focusing employee attention and effort on increasing the company’s value;
- Creating an additional compensation system that does not generate significant upfront costs (i.e., the obligation to deliver program benefits arises only upon the occurrence of a specific, clearly defined event in the Program Rules);
- Attracting highly qualified professionals from the market or retaining existing talent despite limited financial resources.
A good practice is to develop the program’s rules in consultation with those who are expected to participate (if they are already part of the company). However, to avoid overburdening them with the responsibility of crafting the final solution, such collaboration should be limited to advisory input.
An ESOP should be a long-term tool — which is why it deserves careful and thorough planning.
