Swiss Startup Day 2019
[Pages:32]Swiss Startup Day 2019
Tuesday, 28 May 2019 ? Bern
Incentive Plans for Startups
Shares, options or phantom instrument ? what fits best for me?
Speakers
Agenda Employee Participation Programs Tax Implications Incentive Plans Q&A Session Appendix
Karim Maizar
Dr. iur. / Attorney at Law Partner, Head Startup Desk Kellerhals Carrard
Raemistrasse 5 P.O. Box 8024 Zurich
Tel: +41 58 200 39 42 Email: karim.maizar@kellerhals-carrard.ch
Remo Schmid
Partner Leader Compensation Consulting PwC Switzerland
Birchstrasse 160 P.O. Box 8050 Zurich
Tel: +41 58 792 46 08 Email: remo.schmid@ch.
Swiss Startup Day 2019
Incentive Plans for Startups
2 May 28, 2019
Agenda
Swiss Startup Day 2019
Agenda Employee Participation Programs Tax Implications Incentive Plans Q&A Session Appendix
Employee Participation Programs
4
1
Relevance for Startups
5
2
Forms of Participation
6
3
Common Instruments for Startups
7
4
ESOP and PS(O)P
10
Tax Implications
11
5
Overview
12
6
Shares
13
7
Options
15
8 Phantom Shares/Options
16
Incentive Plans
17
9
Considerations and Takeaways for Startups
18
Q&A Session
26
Appendix
27
10 Taxation Details
28
Incentive Plans for Startups
3 May 28, 2019
Agenda Employee Participation Programs Tax Implications Incentive Plans Q&A Session Appendix
Employee Participation Programs
Swiss Startup Day 2019
Incentive Plans for Startups
4 May 28, 2019
1 Relevance for Startups
Relevance for Startups
Agenda Employee Participation Programs Tax Implications Incentive Plans Q&A Session Appendix
What are Startups' main reasons to
implement employee participation programs?
? Typical element of compensation in startups in order to attract, motivate and retain key employees (can also be used for late co-founders); particularly nowadays in times of "war for talent"
? Offering compensation schemes that are competitive with those of other (leading) startups ? Aligning employees' interests with the strategy of the startup ("skin in the game") ? Letting employees participate in the long-term success of the startup ? Startups usually do not have sufficient cash available to pay market-based salaries (let alone bonuses) ? Venture capitalists require it
Swiss Startup Day 2019
Incentive Plans for Startups
5 May 28, 2019
2 Forms of Participation
Forms of Participation
Agenda Employee Participation Programs Tax Implications Incentive Plans Q&A Session Appendix
Definition Considerations Examples
Real equity participation (equity-settled)
Employee will receive real shares, i.e. becoming a shareholder
? Direct link between company performance and employees' value creation
? High retention due to long-term participation ? Shares either with full or limited shareholder rights
(e.g. no voting rights) ? Real equity instruments may allow for favourable
tax treatment in Switzerland (note: valuation of non-listed shares needs careful consideration)
? Share purchase plans (discount on purchase price) ? Free allocation of shares ? Option plans ? Restricted/Performance Share Units (RSUs/PSUs)
Phantom participation (cash-settled)
Economic effects of an equity instrument are mirrored in form of a cash payment
? Employee participates in the success of the company ? No real participation is possible, potentially reducing
the employee retention factor ? Higher flexibility and simpler to administrate ? Preserves the ownership structure of the business ? Any payment is considered gross employment
income, being subject to income tax and social security contributions
? Phantom shares ? Phantom options (SARs) ? Cash deferral models
Swiss Startup Day 2019
Incentive Plans for Startups
6 May 28, 2019
3 Common Instruments for Startups
Common Instruments for Startups (1/3)
Agenda Employee Participation Programs Tax Implications Incentive Plans Q&A Session Appendix
Options (real equity participation)
Shares (real equity participation)
? Right, but not obligation, to subscribe (purchase) shares of the ? Free allocation of shares: no purchase price
company at a pre-agreed exercise price at any time during a determined exercise period
? No shareholder rights until the exercise of the options
? Share purchase plan: acquiring shares at beneficial conditions
? Shares can have a blocking period ("blocked shares"); tax discount for blocking period of 6 % per blocking year
? Subject to a vesting period (staggered or cliff vesting)
(maximally 10 years)
? Upon termination of employment during the vesting period, options are generally forfeited
? Employee becomes a shareholder (shareholder rights)
ESOP = Employee Stock Ownership/Option Plan
Swiss Startup Day 2019
Incentive Plans for Startups
7 May 28, 2019
3 Common Instruments for Startups
Common Instruments for Startups (2/3)
Agenda Employee Participation Programs Tax Implications Incentive Plans Q&A Session Appendix
Phantom shares/options (phantom participation)
? Virtual stake in the company with the aim to be treated like a shareholder when it comes to monetary gains upon an exit (or possibly other liquidity events)
? Employee can benefit either from the full value of the virtual shares granted (phantom shares) or from the value created since the date of grant (phantom options)
? Subject to a vesting period ? Upon termination of employment during the vesting period, phantom shares/options are generally forfeited
PS(O)P = Phantom Stock (Option) Plan
Swiss Startup Day 2019
Incentive Plans for Startups
8 May 28, 2019
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