What the heck is an ESOP and why should you care about it? Although not ubiquitous, ESOPs are becoming more common in startups across Europe. And if you’re in the market for a new job, they’re certainly worth keeping an eye out for. Read on to get an overview of what exactly an ESOP is and why they matter.
What is an ESOP?
ESOP stands for “Equity and Stock Ownership Plan” and is a benefit that gives employees ownership in their company through shares of stock. In a very real way, an ESOP allows employees to participate in the success of the company they’re helping to build.
Typically a company has multiple owners. (Anyone who holds at least one share in the company is, technically, an owner.) This can include investors, founders, stock option holders – like employees who take part in an ESOP – and other third parties.
Shares are divided up amongst each group, with each share holding the same amount of value as every other share. As the number of shares increase, the relative ownership of the share decreases. Think of it like a pie cut into equal slices: as more people join the pie party, the size of the pie remains the same but the slices get smaller. It’s the same with the amount of ownership that each share represents as more owners come to the table.
An ESOP is typically based on a vesting schedule, where the employee is granted a certain amount of shares and takes possession of them over a set period of time. For example, if a person is granted 100 shares, they might receive 25 of them each year for four years. This provides an incentive for the employee to stay at the company for a longer period of time.
The benefits of an ESOP go both ways: as a financial incentive for employees, and to help align the interests of employees with those of the organization. When the company does well (through the hard work and dedication of the employees), so too do the employees’ financial rewards, creating a win-win situation for both parties.
Why do you care?
At Personio, our goal is to become the best software company to work for in all of Europe. One of the ways we work toward this goal is our Personio Code, the set of values and operating principles that we live out every day at work. Providing an employee stock ownership plan fits right in with two of our values, #Ownership and #Transparency. The ESOP is one way we live out those values: through financial transparency and by literally giving ownership to our employees.
In fact, Personio CEO and co-founder Hanno Renner is advocating for a more fair wealth-sharing system across Europe. “It is because [of our employees] that the business is successful, not just the founders,” he said in a recent interview with Business Insider. “We need an opportunity to make sure everyone who has a positive impact on the business benefits from it.” For us, providing an ESOP is one way we walk the walk: actually living out our values instead of just talking about them.
Keep an eye out for ESOPs
If you’re looking for an exciting new job, head our way, because we’re hiring! But even if working at Europe’s most valuable HR tech company isn’t your thing, don’t forget to keep an eye out for ESOPs. Offering an employee stock ownership plan is one way that a company can tangibly show that they value and appreciate their employees, as well as providing another financial incentive for you to join up.
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