E.U. Stock Option Policy: Time for a Holistic Approach

The E.U. policy conversation around employee equity in startups has chiefly centred on tax timing. This stance has begun to evolve. Policymakers are now looking toward broader legal and structural barriers to employee ownership. The debate around a proposed “28th regime” for start-ups and scale-ups—an optional E.U.-wide company framework alongside the 27 national regimes—illustrates this pivot. This post argues that the pivot is warranted, but that U.S. experience and scholarship help identify refinements.

Startups, Equity-based Compensation, and E.U. Policymaking

Employee equity participation, often via stock options, is a key feature of startup ownership. Options allow cash-strapped startups to compete for talent even when they cannot match incumbents’ salaries. They align employee incentives with firm performance, promote retention in successful firms, facilitate sorting by attracting workers whose skills and risk preferences match the firm’s prospects, and help protect human capital and intellectual property by reducing incentives to depart prematurely or opportunistically. 

E.U. policy on stock options had its flagship signal in the “Startup Nations Standard,” which addressed stock options through two headline principles: (i) no taxation before “cash-out,” and (ii) the ability for startups to issue employee equity with non-voting rights. While tax law was particularly salient, elements of corporate law were also beginning to enter the discussion.

Following on that path, the June 2025 Repasi Report (“RR”) builds on this trajectory by adopting a more holistic perspective on corporate law and, more broadly, by situating employee stock options within the wider challenge of startup and scale-up infrastructure. It envisages optional, harmonised rules for broad-based employee stock ownership, calls for model agreements to reduce implementation costs, and promotes publicly available guidance to improve awareness and uptake.

A Welcome Shift, but Key Parameters Remain Underspecified

The policy conversation is now more consistently extending beyond tax principles toward corporate law “plumbing” and delivery infrastructure needed for uptake. This more holistic approach is welcome. However, important design parameters remain underspecified; the U.S. experience and scholarship provide a basis for identifying the operational frictions E.U. policy should address if equity compensation schemes are to scale.

First, U.S. (Delaware) corporate law has long been friendly to private ordering, facilitating option pools, vesting structures, and governance arrangements that make these instruments operational at scale. Recent theoretical research (particularly work one of us did with Luca Enriques and Tobias Tröger) shows that corporate law matters (Enriques et al. 2025a), first, because of process: equity compensation schemes must be implemented through corporate acts repeated across the firm lifecycle—authorising pools, granting options, maintaining cap tables (Enriques et al., 2025b). This is salient because these schemes depend on repeated corporate acts and governance choices over time.

Second, as we empirically show in our work in progress, legal regimes matter because employee equity adoption hinges on whether startups can set option terms—especially strike prices—to reflect early-stage economics. In venture capital-backed firms, employees typically receive common shares, while investors hold preferred shares with superior rights; so the last-round price often overstates common’s value. Where law or administrative practice forces strike prices to track that price, options become costly and may trigger tax or compliance risks. 

Third, we find that knowledge and experience matter even more. Employee equity adoption is associated with learning and familiarity: startups that engage external legal advisers are nearly five times more likely to grant employee equity, and founders who previously worked at startups are about twice as likely to do so. This pattern suggests that adoption depends on familiarity with an established blueprint for structuring technology firms, including shared norms around employee equity design and implementation.

Fourth, prior work by one of us (with Raviv Murciano-Goroff) shows that the U.S. market for private-company equity compensation is opaque and can be misleading for employees (Aran & Murciano-Goroff, 2025). Startups may legally offer equity to non-sophisticated employees who often lack both the expertise and the information needed to assess its value. Disclosure to startup employees therefore should not mirror public-market disclosure, but instead focus on the more direct, decision-relevant information employees need to understand the economic value of their equity based compensation (Aran, 2019).

Finally, experience from the U.S. suggests that employee stock options are important but not sufficient: stock options are well-suited to early-stage firms, where valuations are low and exercise costs are modest, but as firms grow and valuations increase, they rely on other equity instruments. Later-stage firms tend to use Restricted Stock Units (RSUs) and other arrangements that do not require employees to pay an exercise price or make time-sensitive exercise decisions after leaving the firm, reducing liquidity and risk constraints for employees as firms mature (Aran, 2024).

Suggestions for Possible Refinements

We propose four targeted refinements to translate the RR’s conclusions into a scalable ESSU module:

Suggestion 1: A Standardised Cap-Table Toolkit – Reforms should mandate a clear framework for managing equity, defining procedures for option-pool creation, grant authority, leaver treatment, and record-keeping. Using the Open Cap Table (OCT) format —an open, non-proprietary standard developed in the U.S.—would allow the E.U. to build on an existing, widely used framework rather than starting from scratch, providing a common structure for cap tables that enables equity information to be reliably understood, shared, and transferred across legal, tax, and administrative systems.

Suggestion 2: Anchor Option Economics via Valuation Safe Harbours – Because the most critical condition for success is the ability to set low strike prices, reforms should include a valuation safe harbour that recognises the economic difference between common and preferred shares. This would allow startups to justify lower strike prices using accepted valuation techniques, providing a shared reference point for tax authorities without dictating tax policy.

Suggestion 3: Treat Implementation Support as Part of the Policy – and provide a wider roadmap.
Legal rules alone will not drive uptake. The Repasi-led initiative should deliver templates (plan documents, resolutions, disclosure packs) and practical guidance for founders, HR, and practitioners, supported by FAQs and worked examples.

Suggestion 4: Outcome-Oriented Disclosure – Information opacity in stock option grants is a problem. To address it, we suggest shifting from traditional financial metrics to economic outcomes. Reforms should replace financial statements with a requirement for a current fair market valuation accompanied by an exit waterfall analysis in different exit scenarios —that is, an illustration of how exit proceeds would be distributed across shareholders and option holders under different exit outcomes. This would help employees understand how capital structure impacts payout without exposing issuers’ sensitive financial data. We also recommend providing this disclosure at the offer-letter stage to enable informed decision-making before accepting a job offer.

Suggestion 5: Reforms should treat stock options as a first step and include them within a broader equity-compensation roadmap, so early-stage firms of today are not pushed into a single instrument as they grow.

The E.U. is moving beyond tax principles toward corporate law plumbing and delivery tools for broad-based equity compensation schemes. The RR is a crucial step, but scalable plans require operational detail. Implementing the refinements proposed here would strengthen the blueprint and make stock options work in practice across the Single Market.

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Yifat Aran is an Assistant Professor at Haifa University.

Casimiro A Nigro is a Lecturer in Business Law at Leeds University. (ECGI Academic Member)

This blog is based on a paper presented at the Fifth LawFin Workshop, Building Europe’s Venture Capital Market: Contractual Transplants, National Challenges, and the Road to a Pan-EU Regime, held online in December 2025.  Visit the event page to explore more conference-related blogs.

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