Exploring Employee Participation Plans in Swiss Startups: ESOP, PSP, and EPP

In the competitive world of startups, attracting and retaining top talent is crucial to success. Employee participation plans have become a popular tool to incentivize employees and foster a sense of ownership in the company's future. In Switzerland, startups often offer various employee participation plans, including the Employee Stock Option Program (ESOP), Phantom Share Program (PSP), and Employee Stock Purchase Plan (ESPP). In this blog post, we will explore these programs and their key features.

1. Employee Stock Option Program (ESOP):

Short Description:

The Employee Stock Option Program, or ESOP, is a program that allows employees to buy company shares at a predetermined price as part of their compensation package.

Form of Participation:

ESOP falls under a contractual and equity-based form of participation.

Participation Rights:

Employees do not have participation rights until they exercise their stock options.

Tax Situation:

Taxation occurs at the time of exercise, triggering income tax and social security contributions.

Administrative Overhead:

Setting up an ESOP involves careful planning and requires both board and shareholder approval and amending the articles of incorporation.

Flexibility after Implementation:

There is limited flexibility, with the need for board, general assembly, and participant approval for adjustments.

2. Phantom Share Program (PSP):

Short Description:

The Phantom Share Program, or PSP, is a compensation arrangement where employees receive virtual or "phantom" shares that mimic the value of actual company shares without actual ownership.

Form of Participation:

PSP is contractual in nature.

Participation Rights:

Employees have no actual participation rights.

Tax Situation:

Taxation occurs at exercise, resulting in income tax and social security contributions.

Administrative Overhead:

Program setup is straightforward, relying on contracts and board approval.

Flexibility after Implementation:

There is high flexibility with program adjustments easily accomplished through contracts.

3. Employee Stock Purchase Plan (ESPP):

Short Description:

The Employee Stock Purchase Plan, or ESPP, allows employees to buy company shares at discounted or preferential rates, offering them the opportunity for real ownership in the company.

Form of Participation:

ESPP falls under the category of equity-based participation.

Participation Rights:

Employees have full shareholder rights.

Tax Situation:

Taxation depends on the difference between the purchase price and the fair market value of the shares.

Administrative Overhead:

More complex to set up and maintain, requiring board and shareholder approval and amendments to the articles of association.

Flexibility after Implementation:

There is limited flexibility, similar to ESOP, with approval required for adjustments.

Topics to Consider When Drafting an Employee Participation Plan:

1. Vesting:

Most employee participation plans have a vesting period during which employees must stay with the company to fully claim their benefits.

2. Cliff:

The initial "cliff" period where employees do not have ownership rights is often defined in terms of years of service or specific events.

3. Good / Bad Leaver:

Different treatment for "Good Leavers" (favorable exit) and "Bad Leavers" (unfavorable exit) is commonly outlined in the plan.

4. Buy-Back:

A buy-back provision allows the company to repurchase employee-held equity or ownership interests.

5. Circle of Participants:

The composition of participants can vary, and it can be explicitly defined or at the discretion of the board of directors.

6. Lock-Up Period:

Lock-up periods are established to ensure that participants remain invested in the company for a certain period.

Employee participation plans in Swiss startups, including ESOP, PSP, and ESPP, provide valuable incentives for employees while fostering a sense of ownership and alignment with the company's success. Startups must carefully consider the pros and cons of each plan and tailor them to their unique needs and circumstances. Regardless of the plan chosen, these programs play a vital role in attracting and retaining talent and aligning employees with the long-term success of the company. In the dynamic world of startups, these participation plans can be a key driver of employee motivation and organizational growth.

To discover more about Employee Participation Programs and their implementation in your startup, please don't hesitate to contact us. We're eager to provide you with valuable insights.

Please find below a downloadable PDF containing all the information from the blog article above for your convenience.

VVS - Employee Participation Plans an Overview 20231102.pdf

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