Stock Option Plan: why wait for the bill to commit employees?
The bill to amend the tax rules for stock options will soon be introduced in Parliament. This bill was previously put on hold, but it was decided not to amend it. That the bill is being resubmitted is good news for start-ups and scale-ups, but why wait until 1 January 2023 in this tight labour market? In this news item, KWPS discusses alternatives.
Bill suspended and resubmitted
In September 2021, the bill amending the tax rules for stock options was submitted. As a result of doubts raised by Members of Parliament, the State Secretary of Finance postponed the discussion of the bill. The doubts of the Members of Parliament mainly concerned the implementation burden as well as the possibility of a generic application of the stock option tax rules. After all, the scheme is intended for start-ups and scale-ups, not for multinationals. It would be explored how the bill could be amended to meet the doubts and objections.
On 4 April 2022, the State Secretary informed the Parliament about the results of the exploration. Remarkably, the bill remains unchanged. The examined adjustments appear to have more objections than to remove bottlenecks. In addition, the original proposal prevents improper use as much as possible, so that amendment does not appear to be necessary. If adopted, the bill will come into effect on 1 January 2023.
Reason for the bill: preventing liquidity problems
Currently, an employee owes tax when he exercises his stock options. In start-ups and scale-ups, however, the acquired shares are often not tradable yet, so that no liquidity is available to pay the payroll tax due.
The bill makes it possible to shift taxation to the moment the acquired shares become tradable. This will prevent liquidity problems for the employee. Of course, there will be no change in the moment of taxation if shares can be traded directly. This is often the case with publicly traded companies and thus prevents improper use.
The State Secretary considers the measure in this bill important for the competitive position of start-ups and scale-ups. Start-ups and scale-ups have one goal: the growth of their company. Crucial to this is attracting and retaining employees who have a substantial impact on this growth. Lack of cash, however, makes it difficult to offer competitive salaries. For such companies, an attractive stock option scheme can make a big difference.
Retention through reward: Long Term Incentive Bonus Plan
Other, simpler instruments are also available, particularly for staff retention. By means of a Long Term Incentive Bonus Plan (hereinafter: LTIBP-scheme), it is already possible to attract, retain and reward employees who have a substantial impact on the company's long-term strategic plan.
Under an LTIBP scheme, employees receive a cash bonus. However, the LTI-bonus established in any calendar year is only paid out in one or more future years. The time period depends on the strategic long-term plan. There is also freedom in the payment schedule of the LTI-bonus. For example, the bonus may be paid out in one lump sum three years later, or it may be paid out in shifts. Does the employee leave the company before that time? Then the bonuses that have not yet been received expire.
In conclusion
An LTIBP-scheme has the same objective as a stock option plan: to retain key employees. It is an attractive scheme for employers who want to retain their employees and it is easier to set up than a stock option plan. The employer will have to dig deep into his pockets, unlike in a stock option plan. However, as the payment date is largely in the future, a LTIBP scheme still offers opportunities for fast-growing and already established companies.
8 June 2022
