Sweden has, in recent years, evolved into one of the most dynamic startup environments in the Nordic region. Many small and fast-growing companies are searching for skilled employees, but it is often challenging to compete with the salaries and benefits offered by more established companies. Incentive programs have become a popular method to attract and motivate talents by offering employees future ownership stakes. In this article, we describe two of the most common incentive programs used in Sweden.
Warrants
Warrants are securities issued by a company which grant the holder the right to acquire newly issued shares in the future at a predetermined price within a specified time frame. When acquiring the warrants, the employee pays a premium corresponding to the warrants’ market value. As long as the market value is paid at the time of acquisition, no benefit taxation arises.
Advantages
- Can be used by all companies.
- Warrants are registered with the Swedish Companies Registration Office.
- Tax-efficient.
Disadvantages
- The employee must pay a price equivalent to the warrants’ market value.
- If the company does not increase in value as planned, there is a risk that the warrants will become worthless.
Qualified Employee Stock Options
Qualified employee stock options (QESOs) are synthetic securities issued by a company which give the holder the right to acquire newly issued shares in the future at almost no cost. QESOs are not subject to benefit taxation. However, to issue QESOs, the company, the employee, and the option must meet certain statutory requirements, including (but not limited to) criteria regarding the company’s sector, revenue, number of employees, the employee’s working hours, salary and length of employment, and the value of the QESOs.
Advantages
- Tax-efficient.
- Share prices can be set very low, making the shares almost free.
Disadvantages
- Cannot be used by all companies.
- If any of the legal criteria are not met, the QESOs will instead be treated as standard employee stock options, which are not tax-efficient.
Summary
Incentive schemes such as warrants and qualified employee stock options are powerful tools for startups to attract and retain key talent. Warrants are accessible to most companies but require an upfront investment from the employee, whereas qualified employee stock options can be offered almost cost-free but are subject to strict legal requirements to maintain their tax advantages. A well-considered choice of incentive program and proper structuring are critical to optimizing benefits and minimizing risks.
Contact Håkan Hallström or Mikaela Gisslén to find the best solution for your company.
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Equity Partner
+46 76 724 40 02
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Associate
+46 76 495 13 99
