Addressing Common Concerns: FAQs About ESOPs In Singapore

Employee Share Option Plans (ESOPs) have become a popular tool for companies looking to attract and retain top talent in Singapore. However, misconceptions and concerns often surround these plans.

Below, we will address some common questions and concerns regarding Employee Share Option Plans in Singapore.

What is an Employee Share Option Plan (ESOP)?

An ESOP is a benefit program that allows employees to purchase company shares at a predetermined price, usually lower than the market value. It serves as an incentive for employees to contribute to the company’s success and aligns their interests with the organisation’s growth.

Who is eligible for an ESOP?

Eligibility criteria vary among companies, but typically, full-time employees, executives, and sometimes even part-time employees may be eligible for participation. Companies use ESOPs to reward and motivate employees at all levels.

How are ESOPs taxed in Singapore?

ESOPs in Singapore are subject to taxation, and the tax implications depend on various factors. Generally, employees are taxed on the gains made from selling the shares acquired through an ESOP. However, the timing and method of taxation may differ, and it is advisable for employees to seek professional tax advice.

What happens if an employee leaves the company before exercising their options?

The treatment of unexercised options upon an employee’s departure varies. Some companies may allow employees to retain their options for a certain period post-employment, while others may require immediate forfeiture. It is crucial for employees to carefully review the terms of their ESOP agreement to understand the implications.

Can ESOPs be offered by all types of companies?

While ESOPs are popular among startups and established companies alike, not all businesses may find them suitable. Factors such as the company’s structure, goals, and financial stability influence the decision to implement an ESOP. Startups often use ESOPs as a way to attract top talent when they may not have the resources for competitive salaries.

Do ESOPs dilute existing shareholders?

Yes, the implementation of an ESOP can lead to dilution for existing shareholders. New shares are issued when employees exercise their options, reducing the ownership percentage of existing shareholders. However, many companies carefully structure their ESOPs to minimise dilution and strike a balance between employee incentives and existing shareholder interests.

How are the exercise prices determined?

The exercise price, or the price at which employees can purchase shares, is typically set at a discount to the market price at the time of grant. Companies consider various factors, including market conditions, the company’s financial health, and the need to provide a meaningful incentive to employees.

Are there any regulatory requirements for ESOPs in Singapore?

Yes, companies offering ESOPs in Singapore must comply with regulatory requirements. The Inland Revenue Authority of Singapore (IRAS) and the Accounting and Corporate Regulatory Authority (ACRA) may have specific guidelines that companies need to adhere to when implementing and managing ESOPs.

Can ESOPs be customised for different employee groups?

Absolutely. ESOPs can be tailored to meet the unique needs and goals of different employee groups within a company. For example, executives may have a different vesting schedule or exercise period compared to other employees. Customization allows companies to align the plan with their specific objectives and the diverse needs of their workforce.

How do ESOPs contribute to employee retention and motivation?

ESOPs create a sense of ownership and alignment between employees and the company’s success. When employees have a stake in the organisation, they are more likely to be committed, motivated, and willing to contribute to the company’s long-term growth. This, in turn, can enhance employee retention and foster a positive workplace culture.


Employee Share Option Plans offer a powerful mechanism for companies in Singapore to attract, retain, and motivate their workforce. While concerns and questions may arise, a clear understanding of the intricacies of ESOPs, along with legal and financial advice, can help both employers and employees make informed decisions. As ESOPs continue to play a pivotal role in the evolving landscape of employee benefits, addressing these common concerns contributes to a more transparent and successful implementation of these plans in the Singaporean business environment.At Max Lewis, we provide a plethora of services, from asset-based valuations to transfer pricing services in Singapore. Our firm has been awarded with the Best Business Valuation Consultancy Firm of the Year Award at the Corporate LiveWire Global Awards, as well as the Best Valuation Firm 2022 Award at the APAC Insider Singapore Business Awards, demonstrating our reliable services. Contact us today for more information about our services.

*The above represents our views and opinions and does not reflect the position of any entities mentioned.