The Employee Without a Salary who Looks at the Equity Compensation Plan Through the Window.

Yes, the Netflix series, The Woman in the House Across The Street From the Girl in the Window, (I love eeetttt) inspired my topic. But I’m not writing erotica abeg. I’m writing about Employee Share Option Plans/Employee Share Schemes/ Employee Schemes/ Employee Share Incentive Option (I’m sure a company labelled their own like this).

These are basically plans companies have to compensate their employees with Equity (shares in the company). They usually offer the employee the opportunity to buy the share at a discount price called the “strike price" hopeful that the shares of the company will skyrocket and the employee can make a profit off the shares. Sometimes, companies chose other ways to arrange their Employee Share Schemes like taking out a portion of the employees salary to pay for the shares offered. The company first sets aside a number of shares labeled the Employee Share Pool, defines the rules of the scheme, and then administers it. These days, most startups operate employee share schemes as a way to retain talent especially when they can’t properly compensate the employee in question. They also use it as a way to push employees to work towards the growth of the company as an increase in the valuation of the company means a profit for the employees who are holding shares through the employee share option plan.

But the problem here is, with startups, how are you certain that they’re going to blow? How are you sure the startup is going to be good enough for the employee to make a profit? In Nigeria, we’ve seen a number of talent complain that they held virtually useless shares in startups through employee share schemes because the startups never grew. We also have situations where the employee share schemes are so restrictive, either because of a vesting schedule of 10 years (yes, I’m not joking I’ve seen a vesting schedule of 10 years) or the company doesn’t even allow the employees sell the shares until stringent preconditions are met. So are they even worth it? If I approach Devs with “pssst pssst! I don’t have money, but I have stocks!” Should they listen to me and join my startup?

Some people say yes, most people say no. Some people say yes because look at the talent that was part of the early years of Alphabet (Google) and Apple, with employee schemes, they’ve made a sizeable amount of money… infact here’s a fun fact. Look up Bonnie Brown. She was an in-house masseuse at Google when they just started, and from kneading the backs of software engineers and participating in the Google Employee Share Scheme for pennies ( she actually paid pennies) Bonnie became a multimillionaire. Her shares in Google keep growing day by day and she’s living in her mansion (s) well rested and happy. And that’s just Bonnie. So definitely Employee Share Option Plans are appealing. However, most people say don’t take Employee Share Option Plans without a salary or a tiny amount of cash as salary because more startups fail than they succeed. How do you know you’re not working at a startup bound to fail? And you’d just work like a slave without getting paid. So Employee Share Schemes are gambles. You have to know when to play your cards.

In Nigeria, because the CAMA is silent on Employee Share Schemes, Nigerian companies and startups do the most with their Share Option Plans. However, there are some limitations on employee share schemes in Nigeria. Firstly, Public companies in Nigeria need approval of the shareholders to create a pool of shares for employees especially their directors. Secondly, CBN and SEC regulated entities need to be certain that they can create ESOPs and equity compensation for directors. Also if you’re a Dev or talent in Nigeria with an ESOP that you just benefited from, please pay your tax. Yes. You pay tax on the ESOP or you can tell your employee to deduct it when processing your Personal Income Tax.

Honestly who doesn’t want to be like Bonnie and make a windfall from just a little amount of money? It’s just that with startups, you never really know which way you’re going.