Early startups can't always match big-company salaries — but they can offer something bigger: ownership. Employee Stock Ownership Plans (ESOPs) let you attract and keep great people by giving them a stake in what you're building.
What an ESOP is
An ESOP gives an employee the option to buy company shares at a fixed price after a period of service. If the company grows, those shares become valuable — aligning the team's success with the company's.
How vesting works
Options usually vest over time (commonly four years, often with a one-year cliff). An employee earns the right to their options gradually, so those who stay and contribute are rewarded.
What founders should set up
- An ESOP pool — a percentage of equity set aside for employees.
- A clear ESOP policy: eligibility, vesting, exercise price and exit rules.
- Proper documentation, since investors will scrutinise it.
A well-designed ESOP is one of the most powerful hiring tools a cash-strapped startup has. Set it up thoughtfully and early — retrofitting it later is messy.
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