ESOP Guide for Employees

About this guide

Not everyone enters the world of finance voluntarily. Some get dragged into it through various means, be it the lure of trading or, what’s likely the case here; they’ve been issued their first stock options as an employee.

Sound like you?

We learned with our State of Australian Startup Employee Equity 2024 that there’s a big disconnect between the perceived importance of equity in the startup scene and the amount of employee education on the subject. Not everyone has a spare CTO available for a whiteboard session.

We find that, whilst the majority of Aussie employees see equity as an important factor in accepting a role, half of them do not really understand the value of the equity they were offered. The big bold message here is that employees are craving for some quality equity education. And we at Cake believe that this is an opportunity that shouldn’t be missed.

There’s much to unpack about the topic of startup equity. This ESOP guide is just the first of many! Let’s get to it.

What is an ESOP

An ESOP is a means by which your employer can offer you equity (or ownership) of the company. A slice of the cake, if you will.

There are plenty of ways to cut the equity cake, depending on different factors like stage of growth or business structure.

One key differentiator for ESOP from other equity types is that, instead of directly issuing shares to the recipients, it gives recipients the option, not the obligation, to purchase shares at a later time only when there is value to do so. This can provide tax advantages for employees and easier administration for employers.

At a high-level, ESOP looks like this: