A guide based on our recent webinar ‘ESOPs Demystified: Designing employee ownership plans that work.’ 

A big thank you to industry leaders, Adrian Pennino, KPMG Director, and Xavier Keary, Gilbert + Tobin Partner, for sharing their insights. 
 
At KPMG High Growth Ventures, we help founders design and implement ESOPs that are fit-for-purpose. This means, balancing tax effectiveness, compliance, and founder control. Whether you're setting up your first plan or scaling an existing one, we support you through the complexities of valuation, vesting, and reporting, so you can focus on scaling with confidence. 
 
Unpacking ESOPs: What is an employee share option plan? 
 
An Employee Share Option Plan (ESOP) is a way for start-ups to share ownership with their team - offering equity in the business as part of their total remuneration. For high growth start-ups, ESOPs are a powerful tool to strategically attract, retain, and motivate top talent by aligning team success with company success. 
 
Why ESOPs matter when scaling your business 
 
For early-stage founders, building a strong team is one of the most critical challenges. With limited capital and high expectations, you need to offer more than just a salary to attract top talent. That’s where ESOPs come in. They allow you to offer equity to your team, giving them a stake in your company’s future and aligning their success with yours. 

But while ESOPs are a powerful tool, they’re often misunderstood. Many founders assume they can set one up quickly using a template or skip the legal and tax advice to save money. Unfortunately, this can lead to costly mistakes. Getting the basics right from the beginning is essential - not just for compliance, but for building trust and transparency within your team. 
 
Unlocking ESOP benefits means: 

• Winning the talent war: In a market where top talent is scarce and expensive, ESOPs can give you a competitive edge. Equity offers a compelling value proposition, especially when cash is tight, helping you attract high-calibre candidates who are motivated by ownership and upside. 

• Build a culture that sticks: Ownership fuels commitment. When your team has skin in the game, they’re more likely to stay and champion your mission. ESOPs help you build a culture of loyalty and shared success. 

• Drive performance through alignment:  Turning employees into shared owners creates a mindset shift which can lead to higher engagement and a team that thinks like founders. 

• Enable strategic, long-term thinking: With equity on the table, your team is incentivised to think beyond the next sprint. ESOPs foster a long-term view, encouraging decisions that support sustainable growth and value creation. 

• Plan your exit without the panic: Whether you're eyeing an acquisition, IPO, or simply planning ahead, ESOPs offer a founder-friendly path to succession. They create internal continuity and can be a powerful tool for transitioning ownership on your terms. 

A well-structured ESOP can help you attract the right people and retain them through the ups and downs of start-up life, all while motivating them to go the extra mile right alongside you. It’s not just about equity, but about creating a culture of ownership and shared success.  

But strong ESOPs require strong communication 

One of the most overlooked aspects of ESOPs is communication. Employees may not understand what they’re being offered or how it works, and how it may impact them further down the line from a tax, legal or otherwise perspective. This can lead to confusion or even mistrust later if expectations are misaligned. 

Founders should take the time to explain the ESOP during onboarding and provide clear, accessible documentation. Hosting a town hall or Q&A session can help demystify the plan and reinforce your commitment to fairness and transparency. It’s also a great opportunity to align your team around your long-term, strategic vision. 
 
Remember, you’re not just offering equity, you’re inviting your team to become co-owners in your mission. That’s a powerful message, and it deserves thoughtful communication. 

ESOP pitfalls to avoid 

Avoid these common mistakes when setting up your ESOP: 

• Outdated or incorrect valuations: Using the wrong valuation can disqualify your plan from start-up tax concessions - costly and avoidable. 

• ATO reporting slip-ups: ESS reporting and payroll tax obligations are critical to get right to avoid pain. 

• Burying ESOP terms in employment contracts: This can create a misleading impression of a guaranteed benefit and lead to future disputes. Keep your ESOP docs clean and separate. 

• Ignoring securities law: Yes, even start-up ESOPs are considered securities. You still need to comply with the key legal requirements. 

Getting your ESOP right from the start sets the tone for your company’s culture and growth. It’s not just a legal or financial tool, but a strategic asset that can help you build a world-class team. With the right advice, clear communication, and a long-term mindset, your ESOP can be one of the most valuable investments you make in your startup’s future. 

Looking to put together an ESOP without getting buried in complexity? Contact the KPMG High Growth Ventures team today to see how we can help your business

If you'd like to catch the full webinar to hear more from our specialists, find the full recording on our events page here.