Employee incentive plans
Employee incentive plans require expertise of corporate law as well as tax law. Our team at BVDV has both in-house. Together with our team of Emerging companies and venture capital, we advise on many employee participations, in some cases shortly after incorporation of the company.
Ways to Rome
Employee incentive plans can be structured in many different ways. From the granting of shares, stock options, beneficial ownership of shares, depositary receipts of shares through a trust foundation, non-voting shares, membership rights in a cooperation, stock appreciation rights (SAR), phantom stock, a bonus scheme or by granting a profit-sharing loan. The possibilities are endless.
Motivation behind EIPs
With an employee incentive plans, employees may benefit from the increase in value of the company over time. It is also a form of social innovation.
With an increasingly tight labor market, there is a growing need to bind employees to companies for a longer period of time. Key personnel in particular must be retained and participation is a good way to do this. Startups and employers in the technical and IT sector often have a different motivation: a great need to retain their talent. A high salary for talent and key personnel, on the other hand, means high costs for the employer, which is particularly problematic for start-ups. Employee incentive plans may offer a solution.
In some cases, employee participation is the way to give the employee(s) a formal say in company decisions. The employer can then take entrepreneurial decisions together with the employee, whereby the employee’s commitment is often higher than with traditional top-down decision-making.
Employee incentive plans may have considerable tax consequences. Wage tax plays a role in nearly all structured plans. After all, wages in kind are also wages on which wage tax is due. When the valuation cannot be properly substantiated, discussions sometimes arise with the tax authorities about the valuation moment and the valuation itself. Substantial interest and in some cases also lucrative interest must also be taken into account.
BVDV and employee participations
Curious about the possibilities of employee participation for your company? Please feel free to contact us.