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How best to explain ESOP to your team

5 minute read

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Why it's important to explain ESOP well

You’re about to launch your employee share options plan (ESOP), or you’ve already got one running. Congrats–getting this far isn’t easy! By this point, you’ll now appreciate that an options scheme can be relatively complex to wrap your head around. This brings us to the actual participants (beneficiaries) of the scheme–your employees. If it’s an employee's first experience with an ESOP, it can come across as overwhelming, so you’ll want to spend time preparing the right delivery. If you work hard to get this right, your company is likely to experience these company benefits:

1. Foster an ownership mentality: By granting employees the option to become shareholders in the company, you empower them to have a stake in the organisation’s success. For this to be meaningful, employees must comprehend the mechanics and the potential benefits it can offer. When employees understand how their actions directly impact the value of their shares (and the overall company), they are more likely to feel motivated to contribute their best efforts towards the company’s growth and success. 

2. Create alignment between the employee and company’s interests: When the employees have a vested interest in the organisation's performance, they’re more likely to make decisions that contribute to its long-term success. But clarity is key here–this can only be achieved when an employee has a clear understanding of how their actions and decisions can impact the value of their shares. 

3. Enhance communication and transparencyWhen employees are aware of the company’s financial performance and the factors that influence the value of their shares, they feel a greater sense of trust and transparency. Regular updates and educational sessions on the overall performance of the company and the impact on their share options (or actual shares) create a strong bond between employees and the leadership team and a more collaborative and engaged workforce.

Top tips to ensure effective delivery to your employees

To do this effectively, you need to ensure that your delivery covers these key points:

Start with the basics - Begin by explaining what an ESOP is and its purpose. Use simple and jargon-free language to ensure clarity and a high-level overview of how the plan works, with an emphasis on granting the employees the opportunity to become shareholders in the company. 

Use real examples of how this can be tangible - There have been famous success stories with exercised options. Use this to help your employees understand the potential benefits of their share options. Analogies can be good too, which you’ll see in the presentation template. 

Provide detailed written materials - Alongside the initial presentation (you can use the template included in this article), and you’ll want to provide employees with a detailed follow-up that explains the ESOP design in-depth. This should include the plan’s key components, such as total options in their pool, vesting periods, exercise prices, tax implications, and anything else specific to their ESOP. 

Ensure leadership has a solid understanding - Leaders need to be involved and proactive in demonstrating a solid understanding of the plan and its benefits to set an example for their teams. Encourage them to reinforce the information provided by offering regular updates and reminders about the ESOP during team meetings or one-on-one discussions. 

Leverage the Orchestra presentation template

After supporting many companies with their ESOP roll-out, we decided to share our learnings by providing companies we work with, with a presentation outline to explain ESOP to your team.  You can use this either when launching a scheme in your company or each time you are reissuing tranches to the team. Here are a few considerations we’ve applied in structuring the presentation:

How to use this template

CAVEAT: You will need to put in a bit of work to get this right! A little bit of investment up front will go a long way in helping your team understand such an important benefit! 

  • Download the template
  • Create a copy and customise the template by:
    - Adding in your company logo where it says [company logo].
    - Change the sections related to specific grant terms (i.e. exercise price, vesting, etc) to reflect what you offer the team.
  • Review the speaker notes to ensure you feel comfortable with the key points on each slide.
  • We recommend creating a dummy grant in your own Orchestra entity account, which reflects the ESOP grant structure the team will be receiving. That way, you can demo Orchestra (versus relying on the screenshots provided).
  • Have a test run with your leadership team, and you should be good to go! Remember, the idea is to get the conversation started. It won’t stop here, but it’s a good way to open a dialogue and welcome ongoing questions.

Note: if you don’t like the analogies or have a better suggestion feel free to let us know your feedback! Also, take this as a first draft and improve from there. You will know the team best and what will work for your team culture. 

Good luck!

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