Stock options and employee plans in Switzerland

Attracting and retaining talent costs money. One way to do it without burning through cash is to let your people share in the value they help create: participation plans, stock options, shares. Switzerland offers mature instruments for this, but they need to be set up carefully, because they weave together corporate law, employment contracts and tax. Here is a map.

Why use them

A well-designed participation plan produces three effects:

• it aligns interests: whoever holds a stake works to grow the company’s value;
• it preserves cash: part of the remuneration is deferred and tied to results;
• it retains key people: with vesting, the value matures only by staying with the company.

For a startup competing with more cash-rich employers, it is often the only way to offer a competitive package.

The main instruments

There is no single “plan”. The most common forms are:

• Employee shares (in an AG): the employee receives or buys shares, often on favourable terms. They become a shareholder in every respect.
• Options (stock options): the right to buy shares in the future at a price fixed today. If the value rises, the difference is the gain.
• Phantom shares / synthetic plans: no real shares, but a contractual right to a bonus tied to the company’s value or to an event (a sale, for example). Useful for not opening up the shareholder base.

In practice, many startups set up as a GmbH prefer synthetic instruments or plan a conversion into an AG, since issuing participations is simpler with shares.

Vesting and conditions

The heart of every plan is vesting: the mechanism by which the right matures over time. A typical scheme provides for maturation over several years, with a first tranche after an initial period. You also need to define the rules for those who leave — the good leaver / bad leaver clauses — and what happens if the company is sold.

Without these rules, a plan risks rewarding those who stay only briefly and losing its purpose. With clear rules, it becomes a genuine retention tool.

Tax and social-security aspects

Here care is needed, because the treatment changes depending on the instrument and the timing. In general terms in Switzerland:

• employee shares are as a rule taxed at the moment of grant, on the monetary advantage relative to the value; any restrictions may reduce the taxable value;
• options have a treatment that depends on their nature and negotiability: taxation often occurs at the moment of exercise;
• synthetic plans and phantom shares normally generate employment income taxed when the bonus is paid out.

The recognised advantage constitutes, in many cases, employment income, therefore also relevant for social-security contributions (AVS/AI/IPG — old-age, disability and loss-of-earnings insurance — and others) and must be handled through payroll. The detailed rules and exact figures depend on the canton and the plan’s configuration: here a case-by-case assessment is essential, without taking the numbers for granted.

Impact on the cap table

Every plan involving shares or options dilutes the existing shareholders. This is why it is worth reserving a dedicated pool in advance and simulating the effect on the percentages, keeping the cap table aligned with the commercial register and the minutes. Improvising leads to surprises at the next round.

Mistakes to avoid

• Promising stakes “verbally” with no documents or vesting.
• Ignoring the tax and contribution impact, with surprises in the payslip.
• Choosing the wrong instrument for the legal form.
• Failing to coordinate the plan with the shareholders’ agreement and the cap table.

How we help

At SIH ONE we design tailored participation plans: choice of instrument, vesting, documentation, coordination with the corporate structure and with payroll, and assessment of the tax and social-security effects. A well-made plan retains the right people without surprises.

Do you want to build a solid incentive plan for your team? Talk to the Ventures division.