The following guide will help you decide which parameters need to be decided for a stock option plan. For remaining questions, contact one of the partnering law firms.
The parameters you need to decide
|Parameter||What to decide||How to decide|
|Size of the pool||Number of options reserved for employees, with one option equal to one common share of the company.|
It is often also expressed in percent of the total shares.
|Discuss with your board, they have to approve the plan.|
Common practice at the seed stage is 5 - 10% of the company’s share capital on a fully diluted basis. This typically goes up to 20% during the company lifetime.
|Vesting||Discuss with your board. Common practice is 3 - 4 years duration, monthly allocation, 1 year cliff.|
|Accelerated vesting at exit, change of control or IPO||Choose among 3 possibilities:||Also this you should discuss with your investors. The common practice is 1 but 2 is also often seen, especially in the US.|
|Exercise Price of Option (strike price)||Choose between||The common practice in seed stage companies is 1. It is also the most employee friendly.|
Tax ruling: In order to maximally take advantage of the tax optimization, a tax ruling is recommended. However it can also be done at a later time point (but before the first exercises).
|Funding||Choose between||The common practice is a conditional share capital.|
|Termination during Vesting Period||If the company should have a repurchase right on vested options in case the employee’s employment is terminated (in good terms).||The common practice is to have a repurchase right even though it is rarely exercised.|
|Termination after Vesting Period||If the company should have a repurchase right on vested options if the employee’s employment is terminated (in good terms).||The common practice is to have a repurchase right even though it is rarely exercised.|
Standard parameters, but good to know
|Eligibility||Who should be able to receive rewards: Employees, consultants, advisors, members of the board of directors (the “Participants”)|
|Issue Price||Free of charge|
|Term of the Plan (Expiration)||10 years|
|Blocking Period for Shares||The shares awarded under the ESOP are subjected to a blocking period (Sperrfrist) of up to 10 years starting at the exercise date. Common practice is 4 - 6 years.|
|Conditions to Exercise|
|Transferability of Options||None, unless in case of death as under the applicable matrimonial property and inheritance laws and the Participant's lawful last will.|
|Transferability of Shares||According to shareholders’ agreement.|
|Anti-Dilution Protection||The Participants acknowledge and agree that the Options granted under this Plan are granted without protection against future dilutive effects (e.g. issuance of new shares of the Company).|
|Tax and Social Security||Income tax consequences or social security contributions in connection with participation in the ESOP according to applicable laws.|
|Governing law and Jurisdiction||Swiss law, place of domicile of the Company.|
Go to PSOP guide
Go to ESOP or PSOP? blog