10 questions to ask when choosing ESOP management software

Over recent years, Employee Share Ownership Plans (ESOPs) have become key tools to help companies attract and retain staff.

ESOPs are also often referred to as Employee Share Option Plans, however using options is only one of the types of share plans which can be used by companies. “Employee Share Scheme” or “ESS” is often used as an alternative term for these plans; for example there are specific tax concessions available for eligible start-ups in Australia under the concessional ESS plans.    

What are ESOP plans?

ESOPs and ESS are plans which allow employees to acquire shares in their company.  Generally businesses will give or sell options or shares to their employees, or they may set up bonus share schemes based on the performance of the company.

ESOPs have traditionally been popular with start-up companies, but there are businesses of all sizes and across many industries who use them to reward employees and help with staff retention. 

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What is ESOP management software?

The administration required to set-up and manage an ESOP can be onerous for companies if they are using spreadsheets and paper documents, particularly as the company grows and more employees are added to the scheme. This increases the risk that paper or spreadsheet records can be lost or misplaced, impacting the effectiveness of the ESOP and meaning that the company could find itself non-compliant.  

Often, a company’s ESOP information will be on an excel spreadsheet which is only accessible by the CEO, Founder, or CFO. It often falls to them to maintain the details and the various legal documents which are required to manage the scheme. Not only this, but mistakes can easily occur in entries, totals, and formulas in spreadsheets. These can have a multiplying effect over time, which need to be corrected at a later date and at a large cost. 

ESOP management software is designed to digitise the ESOP process and paperwork, and reduce the time and effort required by companies to manage schemes. For ease-of-access, ESOP software is often hosted online so it can be accessed from any computer (unlike Excel spreadsheets), and so multiple users can access a single source of truth. 

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Benefits of ESOP management software

With online ESOP software, a company can give participants access to their own ESOP details. Staff are able to login and view key documents, track vesting events,  and receive specific communications from the company. This increases visibility of the ESOP for them and can keep awareness of the plan high, making it more effective as a motivational tool. 

ESOPs can support employee engagement efforts, and studies have found that companies with ESOPs have a lower average level of employee churn, higher wages per employee and higher labour productivity, compared to other firms of a similar size or age. 

Online ESOP management software allows a company to have multiple people accessing the company’s share register and ESOP information. Compared to using spreadsheets, this spreads some of the business risk, and lets the CEO or Founder spend time elsewhere concentrating on their core activities.

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Choosing ESOP management software: questions to ask

When selecting ESOP management software there are a number of questions to ask to ensure that it meets the requirements of your business. 

Can my employees access their ESOP details?

As covered above, it is critical that staff can easily access and see their ESOP information through an online portal. This way they can view all their details including upcoming vesting events, key documents, and grant history. Without this, employees can easily let it go to the back of their mind, impacting the effectiveness of an ESOP as an incentive.

As well as bringing an ESOP plan to life, having ESOP software can help to cut down on enquiries from staff, as they have easy access to their details online.

Who needs to use the ESOP management software?

Another key benefit of online ESOP software for companies is the ability to have multiple people across the company accessing information. For example, staff in Finance and HR should be able to access details relevant for them and manage these accordingly.

Ideally the software would also allow you to grant access to service providers such as your accountant or lawyer, so you can allow them to view or make any required updates to your share register or ESOP.

What types of ESOPs does it manage?

There are different flavours of ESOPs and share schemes, so the software should be able to cover the requirements for the main types: call options, loan to purchase, phantom or bonus share schemes. This includes being able to attach the required documents to ESOP grants, manage vesting schedules, and track progress over time.

Is it easily scalable as I add employees?

ESOP software should allow you to add option-holders easily, including setting up new grants and completing e-signing of the required documents with minimal hassle. After employees have exercised options, the software should make it easy to issue shares to them and to update your company share register with their details.

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Is it easy to issue shares and update my share register?

Looking ahead as your ESOP grows and more employees are having their share options vest and exercised, your company’s share register needs to be updated to remain compliant. 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.  Having ESOP management software which integrates seamlessly with share register or cap table software makes this process a lot faster for companies.

Is it intuitive to use?

You might remember back when you used to have hours of training for new software! Modern software needs to be easy to learn and use, and ESOP management software is no exception. To gauge how intuitive it is, you should ask  software vendors for a demonstration of what they offer, or check out their videos for an overview in your own time. You should also have a look at the software from the investor or option-holders’ point of view to ensure that they can easily navigate to the information they require about their shares and options.

What support does the ESOP software vendor provide?

Even if the ESOP management software is intuitive to use, you should still check for onboarding and a level of ongoing support from vendors. To ensure that your ESOP and share register is correct, the vendor should work with you to audit and assess your data, and assist in loading this into the software platform. The main company contacts should receive an overview of key features and access to a knowledge base for guides and tips. You should check that your investors will also receive support if required to access their information. 

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Does the software regularly add new features and enhancements?

One of the key advantages of online or cloud-based ESOP management software is that the provider can release updates without you needing to do any physical installation. Cloud software vendors should invest continuously in their software to add new features and enhancements, based on feedback from customers.

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How reliable and secure is the software?

The ESOP management software should be high-performing and resilient and should help you scale securely with the best visibility and control. The vendor’s web hosting should provide redundancy and backups, along with security features including data encryption using industry standards.

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How much does the ESOP management software cost?

Of course the cost of the ESOP management software is also a key question to ask. Software providers should offer transparent monthly or annual pricing plans, with access to additional services such as legal partner support for setting up a new ESOP.

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Ideally basic pricing would be charged on a per shareholder or option-holder basis so you only pay for the number of stakeholders you have, and this is adjusted dynamically month-to-month to meet your changing business requirements.

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By using a cloud-based ESOP management platform like Orchestra, employees can access their ESOP information, receive automatic email updates when their options vest, and companies can use the platform to send out regular business and ESOP updates to staff, keeping them engaged.

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Sign up for a free guided demo of Orchestra here.