What is an employee stock option plan (ESOP)?

An early-stage startup struggles to compete with large companies on salary. An employee stock option plan (ESOP) is one of the most common ways to attract and keep great people: employees share in the company's success.

How an ESOP works

1. The company sets aside a percentage of its shares as a pool for employees.
2. An employee receives the right (an option) to buy a number of shares later at a pre-agreed price.
3. The right is earned over time (vesting).
4. The employee usually exercises vested options at an event such as a funding round, acquisition or IPO.

How big should the pool be?

At the early stage the pool is usually 10 to 15 percent of the company. Investors expect a pool that covers the next 18–24 months of hiring after the round. Whether the pool is created before or after the investment affects the founders' stake; see our term sheet guide and valuation guide.

Vesting and cliff

The common structure mirrors founders: four-year vesting with a one-year cliff. An employee who leaves in the first year earns nothing; after a year they earn a quarter, then the rest monthly. Performance-based vesting can be used for key roles.

Strike price

The strike price is usually based on the company's value when the option is granted. Early employees get lower prices, so their gain grows as the company's value rises.

Leaver rules

• How long vested options can be exercised after leaving
• Unvested options returning to the pool
• Good and bad leaver distinctions with different prices

If these are not written clearly at the start, they cause disputes later.

In practice in Türkiye

Turkish law has no detailed, dedicated framework for employee stock options, so startups use different structures:

• Contract-based options: an agreement between the company or founders and the employee to transfer shares when conditions are met
• Phantom shares: instead of real shares, a right to a cash payment equal to the share value at an exit
• Offshore structure: startups with a parent company abroad use that country's standard option plans; see our international expansion guide

A joint-stock company is better suited to share transfers and many shareholders; see limited or joint-stock. Tax consequences depend on the structure, so work with an accountant.

Explaining it to employees

• Show what the option means with example scenarios and numbers.
• Be clear that value appears only at an exit event.
• Provide a written option agreement and plan document.

Conclusion

A well-designed ESOP makes the team partners in the company's success. This guide is general information; prepare your plan with a lawyer and an accountant.