GEO INSIGHTS

The Employee Ownership Fairness Act of 2025, introduced in Congress, aims to ease tax limitations that have hindered ESOP-owned companies from fully funding both ESOPs and 401(k) plans. The bill proposes that stock contributions and ESOP loan repayments no longer count toward annual contribution and allocation limits, allowing employees to maximize benefits in both retirement plans. This change would benefit companies, selling shareholders, and employees alike by removing outdated tax barriers and supporting broader employee ownership and retirement savings.

With IPOs increasingly delayed, employees at private companies are questioning the value of equity compensation, which was once seen as a path to significant wealth. To retain and motivate staff, HR teams are emphasizing transparency, educating employees about equity, and exploring alternatives like tender offers to provide liquidity before an IPO. As equity becomes a less certain benefit, companies are also highlighting other aspects of compensation and promoting a culture of ownership and open communication.

Renault Group is continuing its commitment to employee share ownership with the fourth edition of its Renaulution Shareplan, offering nearly 100,000 employees across 30 countries three free shares and the chance to buy additional shares at a 30% discount. From May 12–30, 2025, eligible employees in 24 countries can subscribe at €31.34 per share, significantly below the €44.76 reference price, with further benefits including free shares for each purchased share. This initiative underscores Renault’s focus on inclusive value sharing and employee engagement in the company’s long-term success.

Startups across the Asia-Pacific and Middle East (APAC and ME) regions are shifting to more conservative hiring and equity practices, moving away from the aggressive expansion strategies seen in 2022. Hiring growth has slowed significantly while employee departures have surged, and employee equity grants have declined by over 30% since 2021, aligning with trends in the U.S., though ESOP sizes remain smaller in APAC and ME. Despite standardized vesting practices and continued growth in headcount at later stages, employee stock option exercise rates have dropped sharply, reflecting cautious employee sentiment amid market uncertainty.

Nexans will launch its 11th employee share offering, “ACT 2025,” in the second half of 2025, allowing employees in 28 countries to purchase shares through a leveraged and secured plan, with a 20% discount on the reference price. This initiative reflects Nexans' ongoing commitment to employee involvement in the company’s performance and will include both direct share subscriptions and participation through company savings plans (FCPE), with a required five-year holding period. The final terms, including the subscription price, will be set on June 20, 2025, and shares are scheduled for settlement and delivery on July 30, 2025.

Employee engagement is at a decade low, with workers feeling increasingly disconnected and uncertain about their companies' futures, prompting experts like KKR's Pete Stavros to champion employee stock ownership plans (ESOPs) as a solution. Stavros argues that ESOPs, when well-implemented, significantly improve culture, engagement, and retention by giving employees a financial stake in their companies, with notable successes like CHI Overhead Doors showcasing life-changing payouts for non-executive workers. However, broader adoption faces barriers such as regulatory complexity and limited accessibility, leading advocates to push for policy reforms while emphasizing that trust, transparency, and genuine cultural shifts are essential for ESOPs to succeed.

The Employment Equity Regulations, 2025 and accompanying Sectoral Numerical Targets came into effect on 15 April 2025, introducing a stricter, compliance-focused framework for designated employers, which now excludes those with fewer than 50 employees. Designated employers must develop five-year Employment Equity Plans aligned with sector-specific targets and the economically active population, ensuring equitable representation across upper occupational levels. A new requirement, the Employment Equity Compliance Certificate, is mandatory for employers doing business with the State, valid for 12 months, and contingent on accurate reporting and alignment with regulatory expectations.

The Israeli Tax Authority’s new Position Paper (1/2025) clarifies that ESOPs may still qualify for favorable 25%-30% capital gains tax treatment during M&A exits or IPOs, even when vesting is accelerated — a shift from prior uncertainty. However, the conditions under Section 102, including trustee holding periods and prior approval, must still be met, and complexities remain, especially regarding the start of vesting and single vs. double trigger acceleration. Despite the tax benefits now being more accessible, the rules are intricate and may require companies to seek formal tax rulings during exits to ensure compliance and minimize risk.

Amid economic uncertainty in 2025, middle-market companies are reevaluating executive compensation strategies to prioritize cash preservation, long-term value creation, and adaptability, shifting away from all-cash bonuses toward deferred compensation and equity-based incentives. Key trends include revising performance metrics, implementing multi-year retention plans, enhancing downside protection, and aligning incentive plans with resilience-focused goals such as margin protection and supply chain agility. Legal considerations emphasize compliance with tax codes, clear documentation, governance improvements, and transparent communication to manage retention risk and support business continuity.