Talent retention is a challenge every startup faces, especially when competing with big salaries. Offering equity can be a powerful way to tie your employees to your company's future success. However, the specific tools you use, whether stock options, RSUs (Restricted Stock Units), or other forms of equity depending on what your local laws and tax regulations are, all can be impactful influencers determining how invested your team is.

Equity compensation comes in various forms, including Stock Options, Restricted Stock Units (RSUs), and Employee Stock Purchase Plans (ESPPs). Each of these tools provides a sense of ownership and long-term financial reward. However, it’s critical to understand the regulatory and tax implications depending on where your employees are based.

• In the US, RSUs are commonly used by startups, where employees are granted stock units that vest over time. Upon vesting, RSUs are treated as ordinary income, and taxes are due at that time. Stock options (ISOs and NSOs) also play a significant role in incentivising employees.
• In the UK, RSUs are less common due to their unfavorable tax treatment. Employees are subject to income tax and National Insurance Contributions (NIC) when RSUs vest. As an alternative, many startups use the Enterprise Management Incentive (EMI) scheme, which offers significant tax advantages for both the company and employees. Stock options granted under the EMI scheme allow employees to potentially pay capital gains tax (CGT) instead of income tax, which can be much more favorable.
• In Europe, the legal and tax treatment of equity compensation varies widely. In Germany, RSUs are treated as taxable income when they vest, similar to the UK, while in France, there are more favorable tax treatments for RSUs if they meet certain holding period requirements. Founders need to consider local laws when designing equity packages that align with both employee expectations and tax regulations.

Imagine you're running a UK-based startup with employees in the US and France. In the US, you may offer RSUs, knowing that employees will pay income tax upon vesting. However, in the UK, you opt for EMI options due to their tax efficiency. In France, you structure RSUs with a holding period to take advantage of the favorable tax treatment. This customized approach helps you attract and retain top talent globally.

WE.VESTR simplifies the complexity of managing different types of equity compensation across jurisdictions in a single platform. Our platform allows founders to track vesting schedules and offers transparency to employees about the value of their equity.