Organisation:
Resource Link:
Published in 2021, Link
My Key Takeaways
Beyond expanding your startup’s pantry (and your co-workers’ waistlines) to try and attract and retain top talent…
What about considering Employee Stock Option Plans (ESOPs)?
Sharing my takeaways from a report by Saison Capital and Svested on Southeast Asia’s (SEA) ESOP benchmarks and practices :
Why do founders use ESOPs?
- 87% to retain talent
- 86% to build culture and create a sense of ownership
- 79% to attract talent
- 33% to save cost to increase liquidity
Current state of affairs of ESOPs in SEA
Growing interest in ESOPs – 2 out of 5 SEA startups do not use ESOPs BUT half of these companies intend to set up ESOPs in the next 6 months. 5 in 10 founders are doing so due to investor/employee pressure.
Accessibility to ESOPs at all levels – 2 out of 3 SEA startups offer ESOP to employees outside the senior management team. Nearly 2 in 5 offer ESOPs to all employees, regardless of rank
ESOP Vesting Structure – monthly is recommended over annual. Most founders follow the global industry standard of 4-year vesting period with a 1-year cliff.
After the cliff period, monthly vesting is recommended as it is simpler to communicate and administer, and avoids mass attrition at the end of the financial year (and your HR team cursing you for the policy too).
ESOP pools not always growing in tandem with the startup’s trajectory
In SEA, most ESOPs are offered at early stages (40-42% at seed and pre-seed stage). Startups generally assign 10% or less for ESOPs at seed stage. This figure remains constant despite subsequent fundraising rounds, & employment growth.
ESOPs not scaling together with the startup’s growth could impact talent attraction at later stages.
ESOPs in SEA still skewed in favour of startups over employees
Only 1 in 3 SEA founders offer a low or negligible strike price. Most set strike prices in line with valuations at the last round.
Half of startups give departing employees less than 6 months or less to exercise options. Double whammy for employees who need cash to both exercise their ESOPs and pay taxes from gains.
A shocking 1 in 5 companies dissolve all options (including vested) upon employee departure. This acts as golden handcuffs, keeping employees trapped by their options.
Only 1 in 7 SEA startups offer accelerated vesting to senior management during a liquidity event, with 1 in 3 even letting invested options lapse.
So what does this mean for my EU/UK startup in SEA?
1. It’s not very fair to exclude your whole team from a chance to reap ESOP rewards. An EU/UK startup with more progressive ESOP practices would certainly become more attractive to SEA startup talents as the latter level up in ESOP understanding.
2. How much ESOP to offer? See this breakdown of ESOP percentages across leadership, senior/junior technical & non-technical roles, and how these compare with annual cash compensation (chapter 3)
3. Check out the resource’s useful cheat sheet for implementing ESOPs successfully (pg 38)
What do you think about ESOPs and their role in talent management?
My LinkedIn post here.
About Zhilin SIM
Having worked and lived in Singapore, the Nordics, China, Spain, UK, I’m now based in Paris.
I’m fluent in English, French and Mandarin, and I’m learning Arabic because it’s a beautiful and fascinating language.
My team creates and supports one-many initiatives connecting Corporate and Startup ecosystems in Europe to business and innovation opportunities in Singapore and Southeast Asia.
I’m passionate about horticulture, watercolour, startups/tech as well as French cuisine, Peranakan kueh techniques and other global cuisines.
Feel free to connect with me if you think my network in Europe and Asia could be of benefit to your business and innovation activities.
