Employee share ownership plans in start-up companies

: motivations, challenges and implementation issues

Abstract

In the ever-evolving landscape of modern business and entrepreneurship, start-ups have emerged as dynamic and innovative enterprises that challenge traditional norms. Despite their potential for disruptive innovation and agile adaptation, start-ups face many challenges, particularly in attracting and retaining talent. To meet this challenge and compete with established companies for highly skilled employees, start-ups are increasingly turning to Employee Stock Ownership Programmes (ESOPs). These ESOPs are a compensation option for companies that allow employees to become shareholders in the company, often issued as part of their overall compensation package. Building on the existing literature, this study confirms established motivations for the adoption of ESOPs, such as employee motivation, the use of ESOPs by start-ups to supplement resource constraints, and the desire to align corporate interests. The study provides new theoretical insights and perspectives, with regard to the challenges faced by founders in adopting ESOPs. In particular, knowledge asymmetry among employees and the complexity of achieving transparent practices play an important role. By providing insights into the standard of vesting periods and the size of the ESOP pool in the start-up landscape, the study also allows for managerial input. Based on nine semi-structured interviews with founders actively involved in the design of ESOPs, the study offers nuanced insights into strategic choices, challenges and potential impacts on start-up culture.

Date of Award	26 Jan 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Filipa Andrêa Godinho de Lancastre Serpa Pinto (Supervisor)