ESOPs or „Employee Share Option Plans “ are frequently mentioned form of engaging employees even in our geographical latitudes. ESOPs are a form of benefits when company founders decide to allocate a share of capital for the benefit of their employees. At Accace / InvAce, we participate in development of Optiomat tool which is currently in the process of optimization. Read the interview with Peter Pašek, Managing Director & Partner Accace Slovakia and Peter Goceliak, Founder & CEO Optiomat.
What is ESOP? How frequently do Slovak companies use it?
Simply said, it is a benefit program that allows employees to obtain options after certain lapse of period – future right to buy, or to receive for free a certain percentual share on a company in which they work. Such form is frequently used in Slovakia, even though so-called phantom stocks still prevail. Taxes are essentially the reasons for that here and in the surrounding countries.
In Slovakia, the use of option, including its exchange for e.g., stocks or shares, a taxable income arises for employees in the amount of the difference between the market value of the share at a given time and its acquisition price. Such income is also a subject to levies. This is exactly the reason why Slovak start-ups often proceed to issue the already mentioned phantom shares. Their essence is that no real stocks or shares are issued to employees, but a potential increase in a start-up value, or the earned profit share, is paid to employees in the form of a cash benefits and in an amount which they should receive if those stocks or shares were held. The benefit is that the attainment of such a phantom share is not subject to taxes and levies.
On the other hand, payment of the benefit is a subject to the high tax and levy burden which we are familiar with when taxing regular wages.
We have tried to solve this with our Optiomat tool via a more flexible set-up, so-called “exercise period”, a period when an employee has the right to use his option to buy stocks or shares. Since the whole system is fully automatized and digitalized, such adjustments of the period take few minutes. Employees can then exercise their rights at the time when e.g., exit occurs, that is, at the moment when they will receive the real income.
Why was Optiomat created and who is behind it?
First and foremost, because we believe that the future of employee benefit systems is in so-called EEP (employee equity) programs, thus in the benefit system that allows to engage employees in the company’s operations, profit, and value growth in such a way that they will eventually become partners of the company they work for.
On the other hand, creation of ESOP plans as one of the EEP forms, which is the most deployed in the world, is financially and time challenging. Therefore, our mission is to provide a tool that can save time and money of company founders when creating and managing them.
Peter Goceliak came with the initial idea. Me and my Accace team are responsible for the legislation, so everything works in compliance with the legislation across the Europe. Since we have clients in our portfolio and we invest in start-ups, we knew how to help with the solution validation and alfa or beta version testing.
How does Optiomat work?
Thanks to our tool, a company founder can create ESOP plan tailored to his needs with just few clicks. It is very intuitive and easy to use even for a person without deeper legal or economics education. Subsequently, Optiomat allows to invite colleagues via integrated tool, verify their identity and sign documents digitally. Everything, including archiving electronic documents can be set up within 30 minutes. Last time we measured the process at a start-up with 20 employees and it was done within 20 minutes.
What is also important to mention, is the simple update of ESOP plans and the contractual documentation when investors step in, which usually causes redistribution of the shares acquired by the employees before the investing round. The whole agenda is focused in one place. We can also help calculate the target share of an employee in the company after the vesting period. Clients can have this as a single service just for a fraction of the price they would otherwise have to pay for advisors. We are experienced with advisory in this area and we can see an extensive time efficiency in it.
The goal was to provide a tool that could be used by thousands of companies, especially those who due to their phase of entrepreneurship, can’t afford to pay for advisors or just simply don’t want to “burn” their resources for this purpose.
Another advantage of our tool is that if a start-up is interested, the company founders are not forced to give up their shares on behalf of their employees, but they can issue so-called digital certificates that allow to tax employees’ incomes in the same regime as if they held shares or stocks directly. Even better benefit is a decrease in administrative burden that is frequently associated with changing the venturers or the amount of shares from the employees side. Using digital certificates allows these changes to be made without the need for any changes to the commercial registers or securities depositories.
For whom is the Optiomat intended?
Essentially, it is for everyone, but we don’t suppose that huge corporations would have an interest in our solution. In their case, costs and time don’t play a vital role and such sophisticated plans can be prepared in-house. Our target marker are SMEs and specific start-ups in pre-seed and seed phase.
In what countries does the Optiomat work or is being tested? What are the plans?
We look at the entire CEE region, but the target market is the Europe itself. With few exceptions, we can already cover several jurisdictions across Europe, specifically Slovakia, Czechia, Hungary, and Romania. We had contacts with several Ukrainian start-ups, but unfortunately, the current situation changed everything.
Is there a similar software tool for ESOPs creation and management? If yes, what makes Optiomat different?
There is a limited number of platforms which allow effective management of so-called “captable”, which means keeping records of the company’s shareholders. Some platforms also have options for creating and managing an option pool. However, these platforms are designed for Anglo-Saxon legal system and joint stock companies. In Europe, where most of the companies, particularly start-ups are limited liability companies, the mentioned platforms are not suitable.