Employee Share Offering or Stock Option Program? – An Overview of Incentive Systems for Growth Companies

​The success of a growth company often stems from motivated professionals who share a common vision and goals. Ownership-based incentives, such as employee share offerings and stock option programs, are effective tools for attracting and retaining such talent over the long term. While both systems aim to motivate and engage employees, their legal and tax characteristics differ significantly. This article explores how a growth company can choose the most suitable option for its needs.

Management's Perspective

When initiating decision-making, management should clarify the following:

Ownership dilution: How much can the company's ownership base be diluted before the next funding rounds?

Time horizon: Is immediate ownership realization needed, or a long-term incentive based on vesting conditions?

Target group: Does the incentive apply to all employees or only key personnel?

Liquidity: Can the employee realize the value appreciation before a potential exit?

Administration: Does the company have resources to maintain and report on the option program?

Employee's Perspective

From the employee's viewpoint, the attractiveness of the system is influenced by:

Clarity: Share ownership is often easier to understand than option vesting conditions and strike prices.

Taxation: Employee share offerings can be tax-free if the subscription price is set at least at the mathematical value and the offering is directed to the majority of employees. Option taxation is realized only at the time of exercise but is generally higher.

Liquidity: The ability to sell shares and cover potential tax consequences.

Fairness: Equal opportunity to participate in the system.

Corporate Law Differences

Employee share offering:

Directed share issue (Finnish Companies Act, Chapter 9) requires a general meeting resolution or authorization to the board, specifying the maximum number of shares to be issued. The content of the resolution is precisely defined by law.

Requires a "weighty financial reason" (employee retention is accepted).

Shares are immediately transferred to employees with all rights (voting and dividend rights).

The terms of the offering are public and registered with the Trade Register. Vesting conditions, such as leaver clauses, can be defined in a confidential shareholders' agreement, to which subscribers are typically committed.

Registration must be completed within one month of the resolution.

Stock option program:

Option resolution (Finnish Companies Act, Chapter 10) requires a general meeting resolution or authorization to the board, specifying the maximum number of shares to be issued. The content of the resolution is precisely defined by law.

Requires a "weighty financial reason" (employee retention is accepted).

No immediate impact on the company's ownership structure (cap table), but the dilution effect must be considered in documentation.

The option program documentation can also be implemented through a separate option agreement and general option terms. Option terms are registered with the Trade Register and are public, while the detailed option agreement is typically confidential. The option terms must define, among other things, the number of options, the subscription price for options (if applicable) and for shares subscribed based on options, the exercise period, and conditions in potential corporate transactions.

Registration must be completed within one month of the resolution.

Key Supreme Administrative Court Cases

KHO 2021:25: Permits the use of company's own shares in employee share offerings utilizing the 10% tax-free discount, provided the majority condition is met.

KHO 2023:65 and 2023:66: Accept distribution criteria for employee share offerings such as years of service or the value of the employee's work contribution, as long as no one's benefit remains nominal.

KHO 2025:7: Enables conversion of option programs to employee share offerings without triggering payroll taxation, provided the tax efficiency requirements for employee share offerings are met.

When to Choose Employee Share Offering or Stock Option Program?

Choose employee share offering if:

The goal is immediate ownership for all employees.

You want to utilize the tax benefits offered by the mathematical value or 10% discount.

Immediate dilution realization is not a concern.

Choose stock option program if:

The target group is key personnel.

Dilution should be deferred.

The system requires flexibility and performance-based elements.

Value appreciation being realized as earned income at the time of option exercise is not a concern.

Often a combination of these two models, where all employees are offered a share offering and key personnel an option program, can be the most effective solution.

Further information on decision-making and taxation:

Tax Administration guidelines: employment stock options and taxation of employment-based share issues

Finnish Companies Act

KHO 2025:7