Employee share ownership programs play a key role in attracting and retaining talent in startups. By linking the success of employees to that of the company, these programs align their interests with the growth trajectory of the company. They also promote a performance culture and strengthen commitment.

However, the implementation of these programs can represent a significant challenge for companies wishing to implement them. From the development of fair allocation criteria to managing clear communication about the program, startups often encounter obstacles when deploying their plans.

It is essential to design a comprehensive equity program that is aligned with the company's objectives and values to overcome these difficulties and ensure its long-term success. Whether the goal is retention, employee performance incentive, or talent acquisition, a clear definition of the program's purpose is the pillar of its success.

Review of key concepts of an Employee Share Ownership Program (equity program)

The grants

An equity grant, or "equity grant", is a right given to an employee to acquire or receive, under certain conditions and at a future date, a title giving access to the capital of his company.

There are generally three types of equity grants:

• Hire grants: as part of a welcome package, an employee may receive a certain number of shares (usually based on his rank).
• Promotion grants: these grants aim to retain talent. They ensure alignment between an employee's promotion and his interest in the company's success.
• Refresher grants: these grants are used to re-engage and retain the best talent. By offering additional Equity at strategic intervals, companies reward and motivate their top performers.

Acquisition Schedules

These allocations generally follow an acquisition schedule ("vesting"), which is based on the time spent in the company. The main idea behind this mechanism is to strengthen employee retention by linking the acquisition of their rights to their tenure in the company. The equation is as follows: the longer employees stay, the more rights they acquire.

Criteria for Allocation and Acquisition

A commonly used criterion for determining an employee's rights acquisition is their performance within the company. This performance can be evaluated through regular evaluations, the achievement of specific objectives, or contribution to the overall success of the company. Ultimately, the goal is to reward employees who demonstrate particular commitment and efficiency in their work.

Finally, it is important to note that various events related to the life of the company can also have a significant influence on the acquisition process (e.g., M&A operations).

What are the key points to consider when designing your employee share ownership program?

1. The need to communicate

To ensure the smooth running of an employee share ownership program, it is essential to communicate regularly and transparently with your employees. Indeed, it is necessary for employees to understand the rules of allocation and the impact on their overall remuneration so that they are able to value the shares allocated to them. A lack of communication can complicate an employee's departure and create internal tensions. Conversely, clear communication promotes trust and engagement among team members.

2. Defining the allocation criteria and their frequency

Determining the allocation criteria is a key step in designing an effective program. It is necessary to take into account factors such as role, seniority and performance when allocating shares, in order to ensure fairness and alignment with the organization's objectives. Thus, each individual's package should reflect their contribution to the company's success and take into account their potential for development.

To develop a comprehensive Equity plan, it is also important to consider the evolution of employees within the company and the number of shares remaining to vest. Indeed, a single allocation upon the employee's arrival is not enough to maintain their interest in the company's long-term success. It is therefore wise to consider implementing "refresher grants" or "promotion grants" to ensure continuity.

3. The choice of a vesting schedule

Vesting schedules play a crucial role in employee retention and motivation. By structuring allocations with a vesting schedule, companies can incentivize employees to stay engaged in the long term and align their interests with the long-term success of the company. The further employees progress in the vesting schedule, the more likely they are to develop a sense of "ownership" and commitment to the company, thus promoting their performance and loyalty.

The vesting schedule is usually over 4 years. Some companies have implemented 1-year schedules with annual refreshers aimed at allowing employees who want to leave not to remain in the company for their package. However, this approach limits the benefits of the employee shareholding mechanism. Indeed, by making allocations every year, employees do not benefit from the upside of valuation that they would have had by vesting over the longer term.

👉 To learn more about best practices in terms of vesting schedule for BSPCE, check out our article: BSPCE and vesting: the best practices

4. The selection of appropriate legal tools

In France, BSPCEs are the tool to be favored as long as the company is eligible for this system. To implement other types of tools, it is useful to be accompanied, especially internationally where the tax systems of foreign countries can have significant impacts.

Be vigilant to avoid unpleasant surprises!

👉 For more information, we invite you to read our article BSPCE vs. other employee shareholding mechanisms.

5. Setting up rules in case of departure

The common practice in the market is to offer a 90-day exercise period in case of departure. However, this period may seem very short for employees who would not have anticipated this point, thus generating frustration …

To reduce these frictions and in a concern for fairness towards their employees, more and more companies are adapting exercise deadlines. This is the approach adopted at Figures, which offers its employees an exercise period post-departure equivalent to the time spent in the company. For example, if an employee leaves the company after 2 years, he benefits from a 2-year period from his departure to exercise the distributed coupons and acquire shares.

Finally, it is crucial that each company actively manages its employee shareholding program and communicates on these essential points to minimize frictions.

👉 Want to know more in case of departure of an employee holding BSPCE? It's over here!

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Designing a successful employee share ownership program is a complex task that requires special attention to many details. It is essential to communicate clearly with employees, define fair allocation criteria, choose an appropriate vesting schedule, select the right legal tools, and establish clear rules in case of departure.

With these elements in place, your employee share ownership program can become a powerful tool to attract, retain and motivate talent, while aligning their interests with those of the company. Every company is unique and it is important to customize your program to best match your objectives and company culture.