What is an Employee Equity plan?

Stock options, virtual shares, what does it all mean? Here we try to shed some light on your Equity.

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Written by Support Team
Updated over a week ago

Employee equity is a form of non-cash compensation that provides a share (or multiple) of the company's ownership. There can be different forms and structures of equity compensation.

A stock option plan, also called ESOP, is a very common employee incentive plan in Europe.

Options grant the holder the right – but not the obligation – to buy company stock at a set price (strike or exercise price).

After the purchase (also called exercise), the employee becomes a shareholder of the company.

Similarly, a phantom share plan, also referred to as a virtual share plan (VSOP), offers employees many of the benefits of acquiring a stake in the company without actually owning shares of the company.

Instead of receiving a real share, the employee receives a virtual share "certificate".

How do these plans work?

Almost all employee participation plans have a vesting schedule.

A vesting schedule determines how long an employee has to stay employed or otherwise related to the company before being able to exercise the full granted amount.

The vesting schedule is comprised of the following; the vesting duration, or length of the allotment agreement; the interval of how frequently shares are issued; and a vesting 'cliff', a period of time that must pass before any grants are issued to the employee.

You can read more about the types of plans and grants that Ledgy supports in our article on Grant Types.

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