Employee Share Option Plans (ESOP) in Singapore: Benefits, Setup & Tax Rules

Struggling to retain your top talent in Singapore’s fast-moving job market? You’re not alone. In a competitive economy where startups and SMEs constantly battle for skilled professionals, offering just a salary isn’t enough anymore.

This blog explains how an employee share ownership plan (ESOP) gives your Singapore business a strong advantage in retaining and motivating your best people—while aligning their success with your company’s growth. You’ll also learn how to set up a compliant and attractive ESOP with ease.

TL;DR: Why ESOPs Matter in Singapore

• Employee Share Ownership Plans (ESOPs) give your team equity in your company—boosting loyalty and performance.

• ESOPs are a powerful retention tool in Singapore’s competitive job market, especially for startups and SMEs.

• They encourage long-term commitment, align interests across teams, and help you attract top-tier talent without inflating salaries.

• To implement one, define your goals, determine eligibility, structure a vesting schedule, ensure legal compliance, and communicate the plan clearly.

• Partnering with experts like Grof ensures a compliant, well-structured ESOP that benefits both your business and your employees.

What Is an ESOP (Employee Share Ownership Plan)?

An employee share ownership plan (ESOP) gives your employees the option to acquire shares in your company, often at a discounted rate or as part of their compensation. It’s a proven incentive tool to boost engagement, loyalty, and performance.

Key Features of an ESOP

• Equity-based reward: Employees receive part of their compensation in shares or stock options.
• Vesting period: Shares become accessible after a fixed period, encouraging long-term commitment.
• Liquidity event: Employees can realise their earnings during a public listing, acquisition, or company buyback.

In Singapore, ESOPs are especially popular in tech startups and high-growth SMEs, but more traditional businesses are now adopting them to compete for talent in a global market.

 

How ESOPs Help You Keep Your Best People in Singapore

Attracting great talent is hard—keeping them is even harder. Here’s how an ESOP turns the table in your favour:

1. Boosts Employee Retention

An employee share ownership plan directly ties employees’ future wealth to your company’s success. The longer they stay, the more value they gain. This reduces turnover and promotes a sense of ownership.

2. Drives Productivity and Innovation

When employees feel like partial owners, they think and act like business partners. They push harder, take initiative, and care deeply about the results—because they benefit from them too.

3. Levels the Playing Field with Bigger Employers

You may not offer big corporate salaries, but you can compete with equity. Offering an ESOP helps smaller businesses in Singapore stay competitive in attracting high-calibre professionals.

4. Aligns Interests Across the Team

With an ESOP, everyone—from junior staff to top leadership—shares a common goal: growth. This drives collaboration, transparency, and company-wide alignment.

Key Steps in Drafting Your Employee Share Ownership Plan

Designing an ESOP in Singapore requires careful planning and legal compliance. Follow these steps to do it right:

Step 1: Set Clear Objectives

Decide why you want an ESOP:

• Is it for retention?
• Do you want to attract senior hires?
• Are you preparing for a future fundraising or IPO?

Your objective will shape the structure of your plan.

Step 2: Determine Eligibility and Allocation

Decide:

• Who will be eligible (e.g., full-time staff, leadership only)?
• What percentage of total shares will you allocate?
• How will shares be distributed?

This ensures fairness and scalability as your team grows.

Step 3: Define the Vesting Schedule

A typical vesting schedule in Singapore is:

• 4 years with a 1-year cliff (25% of shares granted after the first year, then monthly or quarterly after).

This encourages long-term commitment and ensures employees earn their shares over time.

Step 4: Structure the Legal Agreements

You’ll need:

• An ESOP plan document outlining rules, eligibility, and allocation
• Individual option agreements
• Board and shareholder approvals

💡 We recommend engaging a qualified lawyer or corporate services company to ensure full compliance and proper documentation.

Step 5: Communicate the Plan Clearly

Even the best ESOP fails if employees don’t understand it. Provide:

• A plain-language guide
• Regular updates on company valuation
• Support for exercising options

Employees need to see the value—not just the legal paperwork.

What Are The Tax Implications

As an employer, you receive tax deductions on any costs incurred to acquire your company’s shares for the purpose of transferring them to employees under an ESOP. You receive these tax deductions as long as the ESOP falls under the Qualified Employee Equity-Based Remuneration Scheme (QEEBR).

Employees will be taxed on any gains they obtain when they exercise their share options. For example, if the market price per share is $1 and they exercised the option at $0.60 per share, then they’ll be taxed on the gain of $0.40 per share as part of their employment compensation.

When and how these gains are taxed depends on several factors:

• Gains from an ESOP without a vesting period are taxable in the year that the shares are granted.
• Gains from an ESOP with a vesting period are taxable in the year that the ESOP is exercised if there is no selling restriction.

• For ESOPs with a vesting period and a selling restriction, the gains are taxed only in the year in which the selling restriction is lifted.

Final Thoughts: Use ESOPs to Win and Keep Great Talent

The fight for top talent in Singapore is real—and it’s not going away. Offering an employee share ownership plan lets you attract high-quality candidates, boost employee morale, and drive long-term growth—without raising salaries beyond your budget.

At Grof, we help Singapore businesses like yours set up legally sound and attractive ESOPs. Whether you’re a startup or a growing SME, our team makes the process simple, clear, and compliant.

👉 Learn more about how we support businesses through our corporate services in Singapore.