On the back of today’s new government reforms to the UK’s Company Share Option Plan (CSOP) scheme, the UK now tops the ranks for stock option treatment – making it easier for British startups to attract and retain the talent they need to scale by giving employees a stake in the business they are helping to build.
The ranking, published today by Index Ventures, a global venture capital firm that has led calls for a stock option reform in the UK and across Europe, analysed 24 national stock option schemes. The newly reformed CSOP, together with a long-running and successful Enterprise Management Incentive (EMI) scheme, place the UK ahead of all G7 countries, shoulder to shoulder with Canada, and only second globally.
The successful Enterprise Management Incentive (EMI) scheme has been widely used by startups across the UK, helping them in the early stages of their growth, but it is only available to companies with fewer than 250 employees and less than £30 million in gross assets. Once they have outgrown these limits, British startups who were not yet close to public listing and had many years of scaling ahead of them, found themselves without a scheme that would allow them to fend off larger, often public and well-funded businesses. CSOP, introduced today, is the answer to this challenge as it has no limits on the number of employees or gross assets.
Today’s announcement is a win for the Not Optional campaign, a policy initiative founded by Index Ventures alongside 500 entrepreneurs five years ago, with a goal to improve stock option schemes across the continent, and close the gap with the US. Since the launch of Not Optional, improvements have been introduced in France, Ireland, Sweden, the Netherlands, Spain, Latvia and Lithuania. Policy reviews are also underway in Germany and Belgium, the lowest ranked countries in the Index Ventures analysis. The European Commission has set up the Working Group on Employee Stock Options to review policies across the EU. Not Optional estimates the campaign drove €5 billion more into the hands of startup employees in the last 5 years.
Carlos Gonzalez-Cadenas, Partner at Index Ventures and former senior executive at Skyscanner and GoCardless commented: “We welcome the stock option reforms introduced by the UK government. They are critical in helping scale ups attract and retain the talent they need. This is especially important in the current economic climate that requires careful cash management. Introducing similar reforms in other European countries is of critical importance, as these uncertain times will give rise to many generational companies, and only countries that have favourable talent policies in place will benefit from the resulting innovation and value creation.”
Chancellor of the Exchequer, Jeremy Hunt, said: “We are committed to growing the economy and one way we do that is by supporting the people who invest and innovate. This ranking shows we are on the right track with the joint-best offer in the G7, helping companies keep hold of their most talented staff and the people essential to driving growth.”
Nabeel Vilcassim, CFO at ComplyAdvantage, added: “Equity is core to our compensation philosophy and a fundamental component of our employee recruitment and retention strategy. As a high growth company in constant competition for the very best talent, CSOP will be integral in ensuring that equity remains a meaningful value creation opportunity for all our employees and allows us to continue to attract and retain the UK’s best talent.”
Employee ownership in the form of stock options, the practice of allowing employees to acquire a slice of the company they are working for, has been used successfully in the US and the UK to help startups successfully compete for the talent they need. This is especially important for emerging businesses, who cannot compete with large corporates, tech giants and consultancies on salaries alone.