Switzerland lags behind in stock option policy

Not Optional – the Index Ventures-led campaign to improve stock option rules and improve conditions for employee ownership of Europe’s startups – today marks its fifth anniversary with an update to its country rankings and a call for pan-European alignment on stock option treatment. 

Not Optional launched in 2019 with the support of more than 500 CEOs and founders across the continent who, in an open letter, called on legislators “to fix the patchy, inconsistent, and often punitive rules that govern employee ownership — the practice of giving staff options to acquire a slice of the company they’re working for.”

Since then, 11 European countries have improved the rules that govern stock options, and seven now have regimes that match or exceed that of the United States. The UK maintains its lead among large European economies – although changes to Capital Gains Tax rules expected on 30 October could negatively impact its ranking. Germany, meanwhile, is the biggest mover in the rankings, climbing to fifth place following reforms passed at the start of 2024. The changes resulted in a transfer over €5 billion from the hands of founders and investors to European startup employees. Five years ago, European employee ownership at late-stage startups averaged 12%, compared to 20% in the US, but today stands at 16% and rising.

Despite these achievements, low rankings for countries such as Ireland, the Netherlands, Finland, Sweden, and Switzerland highlight the need for further reform. These low scores indicate that, despite their strong tech credentials, these countries’ startup ecosystems are hampered by inadequate policies.

Switzerland comes in last

The ranking lists a total of 25 countries: 21 European countries, Canada, the United States, Israel and Australia. The three Baltic states of Estonia, Latvia and Lithuania are at the top of the list.

Switzerland is in 25th and last place with fewer points than any other country in the comparison. According to the initiative, “Switzerland is one of the few ‘ripe for change’ countries that have made no meaningful progress in stock option reform since the launch of the Not Optional campaign.”

However, Switzerland's rating has also met with criticism in the local ecosystem. Simon Enderli, CEO Swiss Entrepreneurs Association, for example, says: "I do not entirely agree, as the tax harmonization of 2021 can be described as significant progress in the area of ESOPs. In addition, apart from Belgium (and with some exceptions Portugal), I am not aware of any European country where a tax-free capital gain can be realized from an employee participation. This aspect was obviously not given particularly high priority in the ranking."

The following criteria were considered for the ranking:

• Plan scope: Can all employees and company types benefit from favourable treatment of stock options?
• Strike price: Can options be offered at a strike price below last-round valuation, without adverse tax treatment – reflecting that they are illiquid, high-risk, and non-preferred?
• Employee tax (timing): Are employees taxed only when they sell shares, or when they exercise – or even at the point of grant?
• Employee tax (rate): Which rate is applied – income, capital gains, or something else? Are employee social contributions payable, and if so, how much are they?
• Employer taxation: Is there any financial impact for companies using stock options? If so, when is it incurred? What rate is applied? Are employer social contributions payable, and if so, how much?
• Minority shareholders & bureaucracy: When option holders exercise, they become minority shareholders, who may need to be consulted on various company decisions; does this make stock options unattractive to companies? How does this affect the treatment of leavers? And how much administrative burden and cost is associated with creating and maintaining the plan?