In today's tight labour market, finding good staff can be a big challenge. Once you have assembled a top team, it is important to ensure that this team remains captivated and bound. An obvious solution would seem to be offering a high salary. But what if such an immediate cash-out is not possible, or the talent you have in house is actually looking for a real skin in the game? Then employee participation offers a solution.
There are several ways to engage employees in your company. For instance by granting a bonus, options, (certificates of) shares or the new(er) forms such as Phantom Stocks or Stock Appreciation Rights. We can of course inform you about these forms of participation, but for now we would like to tell you more about Stock Appreciation Rights, also known as SARs. Indeed, we see that this form of employee participation is being chosen more and more often.
Granting SARs is a suitable alternative if you want your employees to benefit from the growth of your company, but do not want your employees to have a say in the form of voting or meeting rights or become party to the shareholders' agreement. There are of course alternative constructions for this, but they often involve high costs and a lot of paperwork. Are you running into this too? Then SARs might be your solution.
If you opt for participation in the form of SARs, your employees do not get shares, but a claim right to the value development of your company. We give an example to illustrate this. Suppose your company is valued at €500,000 and you choose to grant an employee SARs equal to 2% of the shares in your company. You agree that the SARs can be exercised after a period of three years (usually the SARs can be exchanged for cash). In the following years, your company does well and three years later the value of the company - using the same valuation method - has increased to €1,000,000. The value of the SARs when received (2% of €500,000) was €10,000 and has doubled in three years to €20,000. So the employee now claims the positive value development of €10,000.
Participation through SARs is more accessible, cheaper and flexible:
We regularly give presentations on the different forms of employee participation where we help you make an appropriate choice as an entrepreneur. We are then ready to help you implement the participation plan in your organisation. If you would like more information on this, please contact our Employment Law Team.
Read part 2 of this blog series here.
What clients say about us,
"Like many other entrepreneurs, we too want to retain knowledgeable, inspired and committed colleagues. We do that in many ways. Like offering very good working conditions, great workplaces, interesting continuing education and training and unbeatable lunches. In addition, we have allowed those in key positions to participate through Stock Appreciation Rights, or SARs. With the help of Marxman Lawyers, we were able to arrange this in an excellent way!"
Tired of Cancer
Bram Kuiper - CEO