Employee Participation Plans

Why use equity-based compensation?

Start-up companies typically have limited funds and are hence unable to offer their employees the same salaries and job security established firms can. Therefore they often find it particularly challenging to attract and retain talented staff. Employee participation plans are a commonly used tool in the attraction and retention of employees. Also, larger, established companies use employee participation plans as a tool to retain talent and incentivise their key staff.

How do employee participation plans work?

Employee participation plans exist in various forms, e.g. ESOPs, ESOs, Restricted Stock Agreements, Profit-sharing certificates, STAKs, SARs, etc. A very common form of employee participation used in the Netherlands is the transfer of shares to a STAK (‘Stichting Administratiekantoor’, a foundation) that issues depository receipts to a selected group of employees. Depositary receipts give a right to dividends and other distributions attributable to the shares, but no voting rights as these remain with the STAK. Depositary receipts can be issued without the use of a civil-law notary. To maintain control the board of the STAK is usually made up of company board members .

Stock option plans are also operated by Dutch companies, although this is done less frequently due to the tax effects.

Our specialized team of corporate, tax and employment attorneys regularly advise on all forms of employee participation plans. We have also been active in advocating reform through public speaking, publication in various media and providing advice to political parties and the government, with the goal of making it easier for emerging companies to issue employee participation plan to their employees.