Employee Stock Option Plan (ESOP) in Serbia

We are all witnessing a global trend where companies, especially in IT industry, opt more and more for alterative employee benefits in attempt of preserving their experts, such as employee stock option plans (ESOP). Employees who participate in ESOP are in such innovative manner “linked” to their company’s development while receiving opportunity to purchase company stocks in the future at a pre-determined price, usually much cheaper in comparison to market price at that moment.   

Interest for implementation of ESOP is reasonably increasing among multinational companies operating in Serbia, aimed at offering foreign entity stock options to their local employees under similar schemes already existing in other jurisdictions. Unfortunately, ESOP is not recognized in Serbian, generally undeveloped, capital market. Position of the Securities Commission’s (SEC) remained that the Law on Capital Markets (LCM) left no room for any “out of the box” solutions and that any stock plan schemes, including those from foreign issuers, constitute public offering and must therefore abide to mandatory rules defined under the LCM. Eventual offer of foreign entity stock options to employees in Serbia would in interpretation of SEC trigger a number of procedural and practical obstacles proscribed by the LCM, which is very demotivating for most companies interested to implement ESOP in our country.

However, we could say that SEC showed a glimpse of flexibility over the matter in recent years. Namely, SEC found that granting of stock options would not fall under the LCM if two conditions are met: (a) that an initiative for acquiring stock options came from the employee (and not from the company or the issuer), and (b) that the acquisition of stock options is of free of charge. This practically means that ad hoc acquisition of foreign entity stock options on initiative of a Serbian employee is the only scenario that falls outside of the LCM rigid rules.

Having in mind the undeniable advantages of ESOP, we strongly believe that Serbia should undertake legislative changes to enable implementation of this institute for the benefit of both multinational companies and their employees in Serbia.