GEO INSIGHTS

The Menke Group facilitated AV Construction's transition to becoming 100% employee-owned through an Employee Stock Ownership Plan (ESOP), allowing employees to benefit from company ownership and ensuring a strong succession plan. ESOPs, which incentivize and reward employee productivity, offer advantages to both employees and company owners seeking to maintain independence and community presence. With ESOPs particularly effective in companies reliant on human capital, AV Construction aims to provide excellent retirement benefits while maintaining its commitment to healthcare development excellence.

The US IPO market, although challenging over the past two years, shows signs of improvement in 2024 as interest rates stabilize and stock valuations recover. Despite geopolitical uncertainty, IPO proceeds reached US$23.94 billion last year, a marginal increase from 2022, with the market showing resilience and attracting cross-border listings. Technology and biotech sectors are driving IPO activity, buoyed by strong investor support and market performance, while ongoing geopolitical tensions and market volatility remain challenges for potential issuers. However, a positive start to the year and pent-up demand may encourage more companies to pursue IPOs in 2024.

India's robust IPO activity in 2023, with 234 listings raising US$7.89 billion, reflects the country's strong domestic economy and rising corporate earnings, positioning it as a bright spot amid global IPO trends. The second half of the year saw particularly buoyant activity, contributing to India's climb to the world's seventh-largest market by total market capitalization. With momentum carrying into 2024, India anticipates further IPOs across various sectors, driven by favorable market conditions, increasing foreign capital inflows, and a growing middle class investing in equity markets. Additionally, initiatives like the establishment of an international finance center in Gujarat aim to enable Indian businesses to access global capital markets more efficiently, signaling India's outward-looking approach amid its rise as a leading global economy.

Hong Kong-listed IT companies led investments in employee share plans with HK$38.5 billion, representing over half of the total spending in 2022. Healthcare followed with HK$11.5 billion and consumer discretionary with HK$9.7 billion. The adoption of employee share plans surged over the past decade, reaching 83.6% of listed companies by 2022, up from 66.1% in 2012, driven by strategies to attract and retain talent through share options and awards.

Australia is trailing behind the US and advanced European economies in implementing employee share schemes, as revealed by the first global survey spearheaded by tax partner Shaun Cartoon and lawyer Eileen Liu. Conducted by a team of specialists from Arnold Bloch Leibler, Baker McKenzie, KPMG, and Tapestry Compliance, along with issuers and academics, the survey measured operating environments across 26 countries. Australia's complex tax rules and regulatory constraints on unlisted companies have hindered the scaling up of share plans, with tax incentives playing a significant role in decision-making for companies.

Eni's Board of Directors has proposed an Employee Stock Ownership Plan (2024-2026) to be approved at the Shareholders' Meeting on 15 May 2024. The Plan, starting in Italy and gradually expanding to foreign subsidiaries, aims to enhance employee engagement and align with shareholder interests through annual grants of free shares and a co-investment model. This initiative is part of Eni's broader strategy to support its employees and underscores the company's commitment to valuing human capital amid economic challenges.

Airbnb has expanded its pay transparency policy to include total compensation, giving employees visibility over equity awards, base pay, and bonuses. This expansion follows Airbnb's initial steps toward pay transparency in 2022, when it began sharing base pay hiring ranges, and in 2023, when it allowed U.S. employees to access base pay ranges. The company believes that greater transparency around compensation fosters a culture of trust and accountability, and it conducts annual pay equity analyses to ensure fairness in its compensation practices.

Richer Sounds successfully transitioned to an employee share ownership trust, transferring 60% of shares from founder Julian Richer to employees in May 2019, overseen by RSM's People Advisory Services team. This transition involved corporate restructuring, maintaining business culture, and legal and tax compliance, ultimately preserving the company’s employee-focused ethos. The project, completed in 18 months, was well-received by the media, and employees received celebratory bonuses from Julian Richer, enhancing recruitment, engagement, and retention.

Offering equity to employees is a key strategy for startups to attract talent over larger firms, seen in Europe where successful companies like Klarna and Deliveroo have spurred new ventures. However, European taxation on employee stock options varies significantly by country, with Estonia, Lithuania, and the UK cited as the most favorable due to lower tax burdens and simpler regulations compared to countries like France and Germany, which have more stringent tax policies and regulations. These differences impact how much employees can potentially gain from their stock options, influencing company decisions on offering ESOPs versus other equity schemes like VSOPs in heavily regulated markets.