For startups in fast-growing ecosystems such as Singapore, talent recruitment, staff loyalty, and performance motivation have always been vital. To that end, employee share incentive plans serve as important tools for businesses to achieve these objectives, by providing employees with long-term rewards linked to the success of the startup.
Three Types of Employee Share Incentive Plans in Singapore
There are three employee share incentive plans commonly put in place by companies in Singapore, namely:
Employee Share Option Plan (ESOP)
ESOP grants employees the right to purchase shares of their company. ESOPs are administered by the company’s board of management who also lay down the rules of the scheme. Companies set aside an amount of their total equity to offer to key employees over a course of time. The company’s board of management sets the exercise price of the ESOP, but the price set is as close to the Fair Market Value (FMV) of shares. Read more
Employee Share Awards Plan (ESAP)
An ESAP allows companies to award employees actual shares (rather than options) for free
Phantom Share Option Plan (PSOP)
A PSOP is a cash bonus arrangement under which the amount of the cash payment depends on the income yield and capital growth of shares in the company. No shares are actually issued or transferred in the operation of a PSOP
Given the numerous variations of employee share incentive plans, there is no ‘one-size-fits-all’ regulation in Singapore that governs all the employee share incentive plans. Rather, employee share incentive plans are governed by a myriad of regulations depending on the way they are structured.