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Guide to implementing an Employee Stock Option Plan (ESOPs)

by Costi Milchi • Aug 28, 2023 • 8 minute read

Welcome to our guide on how to implement an Employee Stock Option Plan (ESOP) in your company. We have tried to provide you with a detailed understanding of this interesting form of employee compensation and ownership, while keeping everything fast and simple. Although we may not cover all the details you may need for your specific company and situation, rest assured that we're here to provide you with a solid foundation to embark on your ESOP journey.

1: What is an Employee Stock Option Plan (ESOP)?

An ESOP is a structured compensation scheme which your company may offer to your employees. By making some of them part of your company’s ESOP, they will get the option to purchase company shares at a predetermined price, so that in the end they may own a piece of your company. The primary motivation behind ESOPs is to ensure that your employees’ interests align with your company's long-term growth and success. You could find some more general info here 

For more details about possible types of ESOPs you should check the following article



2: Is ESOP better or worse than cash bonuses?

Well, as always, there are advantages and disadvantages to every situation. Although employees may prefer one or the other, typically you should decide on a specific mix of ESOP and cash-based rewards for employees, and then implement this in the compensation packages, tied to specific performance items you consider critical for the company. 

You could get more practical insights about creating and managing an ESOP here 

3. Which are the main steps to implement an ESOP in my company?

If you plan to implement an ESOP in your company, you should navigate through the following key phases:

You could find useful information also here 

Keeping track of what’s going on during all these phases, managing internally the ESOP and giving your employees the possibility to follow the vested options and exercise them may be confusing for both you and them. Nimity solves all your worries, so just register the ESOP at www.nimity.com, and then invite your employees to open accounts with us.

4. How do I grant shares to eligible employees?

All steps in your employees’ participation to the ESOP are visible in their Nimity account 

5: Explain more about Vesting

Vesting is a concept which is always found at the core of any ESOP, as it rewards employees' loyalty and sustained commitment (meaning the company rewards stable and productive employees). By tying ownership rights to their time with the company or performance milestones, vesting should encourage them to remain engaged and contribute to the company's growth.

6: How do employees exercise their Options?

Exercising options is made easy by dedicated buttons in the employee ESOP dashboard, at www.nimity.com.

7: I have some other questions

Profit / loss calculation example

Let's calculate your profit or loss if an employee buys ESOP shares in your company under different scenarios. Let’s say the employee buys ESOP shares worth 1,000 EUR, at a strike price of 0.85 EUR at a moment when the company value is 1 mil EUR, and the share price is 1 EUR. We consider the following situations:

1. The company value stays the same

2. The company value diminishes at 900.000 EUR

3. The company value diminishes at 500.000 EUR

4. The company value increases at 3 mil EUR.


Initial Information:


Scenario 1: Company Value Stays the Same

Scenario 2: Company Value Diminishes to 900,000 EUR

Scenario 3: Company Value Diminishes to 500,000 EUR


Scenario 4: Company Value Increases to 3,000,000 EUR

In summary, the employee profit or loss from buying ESOP shares depends on the change in company value and share price. In Scenario 1, 2 and 4, the employee experiences profits due to increases in company value or share price. However, in Scenario 3, the employee incurs losses due to decreases in company value and thus the share price. Even if the company value decreases, as long as the company share price remains over the strike price, employees win. If the share price decreases below this limit, employees lose.

8: What could Nimity do for me?

Remember: you could access all these features and more by opening a company account at www.nimity.com and inviting your employees to use Nimity tools and dashboards.

9: What do some key terms mean

At the end

We hope this guide has allowed you to gain a solid understanding of ESOPs in general, and hopefully the ones implemented in your company. Now you're better prepared to navigate your journey as a company founder or ESOP manager, and make informed decisions about all the steps you need to design, implement, operate and monitor your company’s ESOP. Please check our platform and web based resources if you want to know more, and do not hesitate to contact us for specific issues related to Nimity.

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