Employee share option plan (the “ESOP”) have seen an impressive rise in popularity across the globe, with more companies offering them as a form of compensation. In KSA, employee share options have recently become a prime option for employers specially tech companies due to the increased flexibility and potential for financial gain that they provide.
Why ESOP are Growing in Global Popularity
ESOP shares offer number of advantages that make them an attractive tool for companies to reward their employees and motivate them to stay with the company: They also provide certain benefits such as:
- Equity – ESOP provides employees with a form of equity, allowing them to benefit from the financial success of the company without having to purchase the actual shares.
- Potential Gains – ESOP shares offer employees the potential for long-term financial gain as well as short-term performance. This makes them an attractive option for employees looking to benefit from the future success of their company.
- Increased Engagement – ESOP shares can also help to increase employee engagement and loyalty by being a shareholder in the company. By providing employees with a sense of ownership in the company, employers can help to boost morale and create a more motivated workforce.
HOW DOES IT WORKS
Usually, the company’s board of director approves the ESOP and set the rules in the form of a plan on how it will work for employees and in most cases grant the chief executive officer of the company the authority to grant the ESOP shares (within the authorised number of shares) based on performance and for talent acquisition purposes since the chief executive office manage the day-to-day business of the company.
We often see in early-stage companies, the board is the administrator of the plan; however, with the growth of the company usually the administration is outsourced to a service provider mainly to assign the fiduciary risk away from management, as well as freeing up of time which the board can instead redirect towards growing the company.
Why Is KSA Prime for ESOP?
Until recently, it was not common for companies in KSA to offer ESOP as a form of compensation. However, the tide is changing, and more employers are now offering them as an attractive option for their employees. Companies have freedom to tailor their ESOP to fit the needs of both the company and the employees, and to modify it as their needs may change. However, stipulations exist on the rights of both the employee and the company when it comes time to “cash-out”.
ESOP is now positioned as the prime option for employers and employees in KSA due to a number of key factors such as (i) being attractive to institutional investors; (ii) cost effective; (iii)result a high retention and attracts talents.
ESOP in KSA: The Future of Compensation
It is clear that ESOP shares set to be a solid option for employers and employees in KSA, with a stable economy, growing stock market, and low cost, they offer a unique combination of flexibility and potential for financial gains that make them an attractive option for both employers and employees.
As more businesses begin to offer ESOP shares, they may soon become the norm in KSA. By harnessing their potential; however, resident companies in KSA must be mindful of the tax implications of offering ESOP shares to foreign employees operating in the Kingdom as the company may be subject to a 20% tax on income generated by shares owned by non-Saudi shareholders. If you are an employer looking to offer ESOP in KSA, be sure to speak with legal advisors who can help ensuring your compliance with the relevant regulations and maximize the potential of this form of compensation.
