5 reasons to move ESOP management from a spreadsheet to online now

There is an increasing trend for companies to use Employee Share Ownership Plans (ESOPs) or Employee Share Schemes (ESS) to support staff retention and employee engagement. However, the administration of setting up and managing an ESOP can be burdensome for companies if they are using spreadsheets and manual processes, and this also limits the engagement opportunities with staff.

Here are five reasons to move the management of an ESOP from a spreadsheet to an online platform in order to maximise benefits for both the company and for employees.

1. Improve visibility and understanding

ESOPs can be complex to understand if company management and staff aren’t already familiar with them. They have become more prevalent in New Zealand and Australia over recent years, but many employees may have not participated in one before. Without this previous experience, they may not have a comprehensive understanding of how their ESOP actually works.

Often, a company’s ESOP information will sit on the CEO or CFO’s excel spreadsheet, so employees do not have any visibility or access to their details and the overall scheme. If they are new to ESOPs, they may be hesitant to ask questions and take up the CFO or CEO’s time. This could result in them becoming disengaged with the scheme, or even worse, sceptical of any real benefit from being a plan participant.

By moving ESOP management to an online platform, companies can give participating employees access to their own ESOP details with the click of a button. Staff are able to login and track vesting events, view and download key documents and receive communications from the company.

Having your ESOP on an online platform will help your employees to familiarise themselves with the way it operates, and better visualise and understand the mechanics of how it works.

2. Maximise ongoing staff engagement in the ESOP

One of the main reasons a company will offer an ESOP programme to employees is to align company goals with individual ones, and to encourage an ongoing ownership mentality in staff. It is vital for an employee to be aware that their work can contribute to the company’s success. If the company keeps performing well, their ESOP allocation can become more valuable and the potential benefit increases for everyone involved in the plan.

Using an online platform means companies can create regular ESOP communications for staff, including automatic updates on milestones such as when their options vest. This can keep awareness high, making it more effective as a motivational tool.

3. Move online and save hours in ESOP administration

In many cases, a company’s physical ESOP documents such as grant letters, exercise notices and Director’s certificates are in the hands of a single individual such as the CEO, CFO or HR Manager. It is their responsibility to maintain and keep a record of these and the various legal documents which are required to manage the scheme. The risk of having such an approach is that often paper records can be lost or misplaced, meaning that the company could find itself non-compliant.

Additionally, the effort involved in printing documents, having them physically signed, scanned, returned and subsequently stored is a time consuming and manual process. Moving ESOP administration online means that companies can grant multiple individuals access to the plan and the necessary documents. They can streamline and remove the paper-based document flows by incorporating electronic signing together with online document storage and sharing. This results in a large amount of savings for both administrators and staff.

4. Move to software before the ESOP grows unmanageable

In many cases, an ESOP will start off small by being offered to a handful of select employees or in the early stages of a company starting up. But as the company grows and more staff are added to the scheme, the administration effort involved in maintaining accurate data can easily grow exponentially.

For example, when an ESOP is first created and implemented it may be offered to a few founding employees, who are set-up on the same 6-monthly vesting schedule. But if you fast forward 18 months, then grants could have easily been given to an additional 20 employees, all of whom were issued allocations at different times and with different vesting schedules. Companies may even have an employee's vesting schedule tied in with KPIs or performance objectives. Altogether, the scheme quickly becomes significantly more complicated to manage.

By moving to ESOP software, you can set up automatic vesting schedules, allowing the administrator to spend less time in front of a spreadsheet, manually calculating and tracking details. Additionally, when an employee wishes to exercise their vested options, the company’s internal administrator would need to amend their spreadsheet and manually generate the paperwork to issue shares to the employee. By using an online platform, these calculations and actions can be set-up to occur automatically, reducing the growing admin burden.

5. The ESOP is synced with your company share register in real time

In the early days of an ESOP, there may not be a need to regularly update your company’s share register as there may be limited changes.

However, as the ESOP develops and more employees are having their share options vest and exercised, it is essential for compliance to ensure that that company’s share register is updated accordingly. Having an up to date share register is the legal obligation of a company in many countries. If employees are exercising their share options at regular intervals, the task of manually updating an ESOP spreadsheet and the company share register can be difficult to keep on top of. Additionally, the company has to then update their regulatory body on any changes, so ASIC for Australian companies or the Companies Office for New Zealand entities.

Using online software like Orchestra for ESOP management, a company can bring all ESOP-related documents and processes together into one system, streamlining the management process for companies and improving engagement with participating employees.

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Related articles:

ESOPs: a comprehensive guide to Employee Share Ownership Plans updated for 2022

How to use ESOPs to increase employee engagement

Using call options for your ESOP

DISCLAIMER: This article is for informational purposes only, and contains general information only. Orchestra is not, by means of this information, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This information is not intended as a recommendation, offer or solicitation for the purchase or sale of any options or shares.