Employment senior associate Joe Choy and Corporate & Securities partner Jeckle Chiu (both Hong Kong) are quoted in this article on employee stock ownership plans (ESOP) among Asian companies.
Joe says most ESOPs in Hong Kong do not mandate employees to purchase company's stocks. "A stock option provides a right, not an obligation, to purchase underlying stock, while a stock award is typically issued without charge." “There may be some share purchase plans under which participating employees are required to use their own money to purchase the company’s stock, typically at a discounted price offered to them,” he adds. “However, this is not the mainstream in Hong Kong and, even for these plans, the employees are generally allowed to elect whether to participate in the first place.”
Jeckle comments that key challenges for start-up companies are valuating ESOP rights when there is not yet a public market for the company’s stock, and determining the appropriate size of the option or share pool for ESOP purposes. “There may be a misalignment in the perception of the employee share value between the company and its employees,” he says. “This hinders the company’s ability to maximise the intended effect of an ESOP in attracting and retaining talent. It also creates a material cost burden for the company when there is a need to value the ESOP rights before a liquidity event.”