Germany, Europe’s third biggest tech ecosystem, has the continent’s worst set-up for stock options in 2023, according to VC firm Index Ventures. The Baltic nations — Estonia, Latvia and Lithuania — remain the friendliest.

Still, across the continent, things are looking up. The share of stock options granted to European scaleup employees has risen to 16% from 12% five years ago, according to new research from Index’s Not Optional campaign.

That means Europe is catching up with the US, where employee stock ownership has increased from 20% to 22% over the same period.  

Why do stock options matter?

Offering stock options is a way for startups to attract talent. Many early-stage companies aren’t able to pay their employees as much as big tech giants — but they can offer them options for shares that, if all goes to plan, they’ll be able to cash out and make a fortune on in the future. 

So far, so good. However, in many European countries employees have to pay hefty taxes on the profits from their shares. The process of setting up a scheme is also often opaque and differs from country to country. 

Hannah Seal, a partner at Index, says that she’s “excited” about European startups getting closer to US levels of stock ownership. 

“We’ve seen in the US the impact of ownership on the entire tech ecosystem, and how positive that has been. So the fact that we are closing the gap and moving towards the more US star model of employee ownership is a positive thing,” she said. “The impact on the rest of the ecosystem has already been positive and will continue to improve.”

Growing momentum 

Momentum is growing across Europe to relax policies and taxation rules to make it easier for companies to offer stock options to their employees. 

For now, the Baltic states have the best regulations for companies that want to offer stock options to their employees, while the policies in Belgium, Germany and Spain are the most burdensome, according to Index’s ranking. 

As of January, Ireland, Spain and the Netherlands have all updated their policies that impact stock options. Similar moves are expected later this year in the UK, Austria and Belgium.

The issue has also been noticed on a pan-European level. Following the publication of the New European Innovation Agenda in July last year, the European Commission is now expected to establish a European Stock Options Working Group led by innovation commissioner Mariya Gabriel. 

This will mark the first time a Commission expert group has been set up to solely address the issue of stock options reform at the European level, signalling that EU policymakers are finally appreciating the need for a more harmonised approach. 

But for Dominic Jacquesson, VP of insight and talent at Index, the biggest change isn’t about policy, but about founders’ and employees’ approach to stock options.  

“The biggest impact has been that change of behaviour,” he says. “Talented candidates are becoming more aware of the value of equity, asking for it more often and expecting it. Before in Europe, often people didn’t know what equity was. So the awareness of talent and then the willingness of founders and investors into becoming more savvy about the value of equity, and the importance of talent, and using equity as a way of hiring and retaining talent, have grown.”

Zosia Wanat is Sifted’s central and eastern Europe reporter, based in Warsaw. She tweets from @zosiawanat.