RSU vs. ESOP: A Comparison

As a result of Covid-19 I, like many business owners/managers had to shift my firm’s focus in order to survive. The great deluge of cheap money flowing into the economy, mostly government funds, meant capital raising (at the outset of the pandemic anyways) came to a standstill.

In our case, we created our Interim CFO solution. The intent being to support business owners who increasingly sought strategic guidance and support to navigate the new Covid world, beyond capital raising alone.

Questions such as how do I change my business model to remain viable, how do I best deploy capital in technology (read our blog here) to reduce costs whilst ensuring client and staff safety, or how do I incent my staff to remain positive and engaged despite having to work remotely, were but a few questions on business owner's minds.

On this last question of incentivization, there are a myriad option available to business owners. Two such options are restricted stock unit (or “RSU’s”) &/or employee stock option plan (or “ESOP”). The table below compares and contrasts these two incentive plans.

As the above table illustrates, there are a number of considerations that need to be assessed in order to pick a plan that works for your company. Of note are the stage of business growth, whether a valuation of the company has been performed and based on said valuation what the dilutive impact will be on the company’s current shares.

Another key consideration is what resources does the company have to monitor and complete the ongoing management of the performance plan. Companies with strong administrative and finance teams might well complete some of the work themselves, while other companies might opt to outsource these functions to a third party.

Ultimately the best option is a plan that both incents your employees in the right way and that administratively is not overly taxing.

Beyond granting work-from-home privileges, flexible office space, technology stipends to upgrade home office computers and workstations, ESOP’s &/or RSU’s might well provide that added bonus to keep employees engaged, productive and happy during these unusual times.

Keep well.

Cheers,

Trevor Palmquist

Founder & Managing Director