Konstanty Sliwowski, CEO of Caissa Global Recruitment, is in conversation with Nico Janike, Salary Partner at Taylor Wessing Germany. They shed light on how a business can use VSOP to its maximum advantage. This video offers a 360° view of the financial problems, problematic clauses, and the financial risks associated with VSOP.
Recruitment and hiring are often considered transactional, as business funding is used to hire and grow teams. Even if CEOs believe that their product, sales, and innovation make them successful, they fail to realize that hiring the right people also plays a part.
This is why the best bosses take the time to ascertain whether to hire in-house or leave it to experts, i.e., the recruitment agencies. They also find new and interesting ways to attract new talent and engage the existing staff; Virtual Stock Option Plans are one such strategy.
Employee Participation Model Schemes And Their Components
There are two popular employee participation schemes: one that offers capital participation and another that comes without capital participation.
An employee participation scheme without capital participation can be in two variants: participation-based bonuses and virtual participation programs.
The employee participation program with capital participation is a more complex model that has formal requirements. They are hard to handle and implement if you want to offer incentives to a large worker base. This is why 95% of businesses in Germany offer virtual participation schemes.
Benefits Of An Employee Participation Model
Through equity capital participation, employees can achieve the highest identification as a partner or a shareholder compared to virtual participation. Equity capital participation offers employees comprehensive shareholder rights, such as voting rights, etc. But it is also subject to complex regulations for the termination of employment with high administration and co-ordination requirements.
On the other hand, virtual participation requires no corporate participation. It is solely based on contractual regulations, offering a flexible legal position with better vesting and separation structures.
Implementation Of A VSOP Scheme
It is a contract with a beneficiary with a grant documentation allotment letter or a local agreement with actual numbers of individual beneficiaries. It is a pre-defined German contract issued by the company combined with the civil law or AGB law in German. All this needs to be aligned with Case A of the federal labor court and civil court.
Moreover, when it comes to implementing a VSOP scheme, companies need to follow the corporate law framework. There might be shareholder agreements or investors who have passed rights aligned with the shareholders' agreements that need to be considered.
The Principle Of Vesting
Once granted, virtual shares are subject to a resting phase to bind the beneficiary with the issuing company. This vesting period can last 3 to 5 years, with the first year termed a cliff. During a trigger event in the vesting phase, all the virtual shares are considered vested.
What Is The Upcoming German Legislation For VSOP Schemes?
Due to Covid-19, the legislator has devised an economic stimulus package
The legislation is a 100-page long document that displays new acts on solving issues regarding employee participation programs
It is meant to create an attractive employee ownership scheme for startups
It is expected that the legislation will offer a framework for virtual participation schemes that will make them even more attractive.
If you want to learn more about VSOP schemes and how they weigh in on executive recruitment or other types of hiring processes, get in touch with us.
