Author: Maryna Pokotylo, Partner at F&P
In the post-crisis economy and global competition for talent, Ukrainian businesses are looking for new ways to motivate employees. One of these tools is the Employee Stock Ownership Plan (ESOP), a model that allows employees to become co-owners of a company. This practice, which is widespread in the US, Israel, and Estonia, is just beginning to develop in Ukraine. According to the National Center for Employee Ownership (NCEO), more than 14 million employees participate in ESOPs in the United States. In Ukraine, we are taking the first steps towards a new culture of corporate ownership. This article explains the legal, tax and practical aspects of ESOP implementation and offers a clear action plan for companies.
Legal conditions: what is available today?
Ukrainian legislation does not yet have a separate regulation for ESOPs, but the Diia.City legal regime opens up opportunities for granting options for company shares to employees and contractors. This is especially relevant for IT companies, startups, and product teams looking to motivate employees through co-ownership. Companies outside of Diia.City can use direct corporate rights or options through foreign jurisdictions, but this complicates the process due to the need for notarization.
Tax features
Tax accounting is a key challenge for companies implementing ESOPs. Tax is charged at the time of vesting, when the employee receives the benefit – shares or cash compensation. To avoid mistakes, companies should clearly record these transactions and engage qualified accountants.
Practical steps to implement an ESOP
Before launching an ESOP, a company needs to assess whether this model meets its business goals: attracting talent, retaining key employees, or increasing their motivation. It is important to make sure that the corporate culture is conducive to the idea of co-ownership and that the company is financially prepared to transfer shares or buy back options in the future. The next step is to choose a model: direct ownership (transfer of shares or stakes, which requires notarization), options (the right to buy out a stake in the future, popular among startups), or using a foreign jurisdiction through a parent company.
Next, you need to develop the structure of the program. A gradual vesting schedule motivates long-term loyalty, for example, rights vest over four years with the first year as a “cliff”. The buyout terms define what will happen in the event of dismissal, IPO or sale of the company, for example, whether the employee can sell the shares back to the company. The option agreement should clearly set out the terms, conditions, tax consequences and scenarios for termination of employment. To do this, you should hire lawyers with experience in Diia.City or corporate law.
ESOPs should not violate the Ukrainian Labor Code or be perceived as a substitute for salary. Transparent communication with the team is critical: employees need to understand the rights they receive, the risks and rewards associated with options. Seminars or consultations can help explain how the shareholding works and how options are converted into shares or cash. For key employees, you can offer larger shares or flexible terms. It is worth starting with a pilot program, for example, granting options to top managers or key developers to test the model and adapt it to the company’s needs.
Benefits and challenges of ESOPs
ESOPs increase employee loyalty and productivity, as evidenced by NCEO data: companies with ESOPs in the US have 25% higher productivity. Options help to attract talent in the face of competition with international players and allow startups to save on salaries by offering potential profits in the future. At the same time, the lack of clear regulation outside of Diia.City complicates the process, incorrect tax accounting can lead to problems, and employees may not understand the value of options without proper explanation.
The future of ESOPs in Ukraine
The demand for ESOPs is growing, especially in the technology sector. Diya.City has more than 700 registered residents, and their number is growing.
In 2025-2026, more companies are expected to declare stock option programs. This is driven by the revitalization of the tech business, the return of Ukrainian specialists from abroad who are accustomed to similar models, and adaptation to European governance standards, where co-ownership is the norm.
Conclusions
An ESOP is not only a motivation tool, but also a way to align the interests of the company and its team. In the Ukrainian context, where legislation is still evolving, ESOPs offer a unique opportunity to reach a new level of corporate culture. A clear legal framework, transparent communication, and a willingness to invest in people are key components of success. Starting with pilot projects and using the capabilities of Diia.City, Ukrainian companies can lay the foundation for an effective model of co-ownership that will become the standard in the coming years.
