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Employee Participation Plan: Options

Key points and English template

Use an Employee Participation Option Plan if...

… you would like to offer your key persons the possibility to become shareholders of your company and to align the incentive structure with your company’s long term success

Key Points included in an Employee Participation Option Plan:

Who is eligible to participate in the employee participation plan and forfeiture provisions
Overall and individual grant limits
Rules for evaluating the shares and price to be paid by the participants to exercise the options
Vesting restrictions, maturity and time limits for exercising the options
What happens with the options when a plan participant leaves the company or when a change of control occurs
Details of the tax and social security treatment of the granted options before and upon exercise of the options

What is an Employee Participation Option Plan?

In an employee option participation plan or “ESOP” (employee share option plan), a company sets forth the rules under which it grants options to buy shares to its employees and board members.

The goal of the plan is broadly to incentivize key persons to stay with the company and perform by allowing them to participate in its financial success.

The rules set forth in the plan substantially determine the value of the options. Because the options are generally treated as part of the salary for tax and social insurance purposes, employers are well-advised to use valuation methods that are recognized by the competent authorities and carefully draft those provisions of the plan that affect the value of the granted options.