As your company becomes more successful, there will probably come a point where you either need to set up an office in another country or hire remote contractors.
The hunt for talent in today’s global workforce is fierce. According to a new Indeed & Glassdoor’s Hiring and Workplace Trends Report 2023 not only are the current workforce shortages here to stay, but they will continue to get worse due to demographics.
Simply put, the number of people of working age in multiple countries is dwindling. To find the best people you will most likely need to use all the resources at your disposal including awarding equity or value in the company with alternate means.
In this article we will tell you what you need to consider when offering stock options to remote teams, what advice to get from legal advisers and what international alternatives exist to share the value of your company.
If you don’t yet have an incentive plan, then this is the perfect time for you to design a scheme that allows you flexibility both locally and globally. Global flexibility is most easily achieved with a Token Incentive Plan whereas locally you might also be happy with just an Employee Share Option Plan (ESOP).
If you already have an ESOP set up, you might be wondering why you can't just give out options to all your employees under the same plan, irrespective of where they are located.
In fact, you might be able to use your existing plan but it depends on the country where your new employee will be and the rules it has. Some countries have very specific and strict regulations when it comes to awarding foreign grants e.g. the USA and China, others can be less regulated and allow for more flexibility.
You need to figure out if you can give the same type of awards to your employees abroad as you can locally and if there are any tax benefits or specific tax regulations that you need to keep in mind during the process.
Apart from any possible legal and tax issues, you should also consider how many options you wish to give to your remote employees. The spending power and salaries in other countries are often wildly different from where your headquarters are.
So do you give out exactly the same amount of options to employees of similar positions in different countries or do you somehow tie it to their salary or to another coefficient?
That is a strategic decision and there is no right or wrong answer.
Yes, stock options can also be given to contractors.
However, to give them to contractors you need to check two things:
If you already have an ESOP but are looking for a simpler way to share your company’s success with contractors, you might want to think about setting up a Token Incentive Plan.
If you wish to continue with your ESOP plan then the questions that have been outlined below can also be used to ask how to give options to contractors and other types of contributors.
We have all heard the sentence that you should get expert legal advice on this or that, which is great until you realise you have no idea how to do it. You might be left wondering what to ask, when you know nothing of the subject.
Just going to a lawyer and paying for general knowledge does not yield the best results and can be a waste of money. So, what are the questions you need to address when looking to award stock options to remote employees?
If you already have an ESOP set up then the first question you want to ask is whether you can use your existing templates.
If you are currently giving out unapproved options (also called non-tax-advantaged or non-qualified stock options) it is likely that you can use the same plan also in the new country.
If the new country has a tax advantageous scheme for issuing stock options, you might not be able to participate in it without some changes to your documentation. It could be just a few words that have to be changed or it could mean you need to set up a whole new secondary plan in order to give the tax advantage to your employees.
Once you have a better understanding of the documentation you need to use for issuing stock options, you should figure out how options are taxed in the new country.
You might wonder why you need to know all these details. For two reasons. First, to make sure that you know your company’s obligations. Secondly, to be able to answer employee questions.
A word of caution - even if you know how stock options are taxed in the new country (because you took legal advice on it and feel confident) then always add a disclaimer when talking to employees that you are not providing tax advice. You will never know all the details that can affect employee taxes - e.g. their dual citizenship, where they own property or the details of their tax residency.
A strike price is the amount of money the employee has to pay for the option to buy out a share. The strike price for employee stock options is set when the board approves the grant. Usually, stock options are issued with a fair market value strike price, sometimes with a nominal strike price.
The fair market value is determined by a third party valuation which is an appraisal of how much your common shares are currently worth.
A nominal value is an arbitrary (usually small) value that has been assigned to your shares for balance sheet purposes.
Some countries require that stock options are issued with a fair market value and this is something you need to know if it is not your standard practice.
E.g. If your company’s goal is to give maximum profit to your employees and you are currently giving out nominal strike price options, you might have to give options with a different strike price in the new country.
If that is the case, you will also need to do a fair market price valuation. In addition, you might have to get the local tax authority’s approval for the strike price that you intend to use.
In some countries, you have to send information to the tax authorities already when granting the options, in others when the employee becomes a shareholder or when they sell the shares.
This again is very country-specific and I wouldn’t generalise the practices. You just need to ask what the requirements are in the country you’re planning to expand to.
It is always good to ask if there is anything else you need to know or do before issuing stock options. There might be some quirks in the system that you haven’t encountered and wouldn’t even think to ask about.
It is good practice to agree on the price and timeframe in writing before the legal firm starts to work on the piece. This helps to better budget both your funds and time.
Giving stock options can be very complicated and in some countries close to impossible. E.g. in Germany due to tax complexities, startups often resort to using virtual shares instead of stock options.
An even simpler and more technology-driven solution would be to offer tokens on the blockchain. Tokens are not as heavily regulated and allow employees to reap the financial benefits of the company’s success without the complexities of managing stock options or virtual shares.
These tokens are not connected to crypto currencies, neither are crypto currencies. They simply represent the promise to distribute the value of a company to its owners at a pre-agreed event e.g. during a sale of shares.
Here at Salto X, we help founders create and manage their company’s upside by issuing company tokens and distributing them among their team members.
If you’re interested to learn more about Token Incentive Plans, sign up for a demo from the link below.