One of the common questions we get at BrightIron is, how should I structure my Employee Stock Option Plan (ESOP) and how much and who should I give it to. After all, ESOPS aren’t just a line item on a cap table—it’s a tool for alignment, motivation, and retention. The way you design and distribute your plan will shape how your team perceives ownership, commitment, and fairness.
👉 In Part II: Practical Guidelines for Option Pools, we break down how to size, budget, and manage your ESOP with discipline, based on what we’ve seen work across dozens of startups. But first, here are some of the common approaches we recommend when it comes to allocating equity.
The “Peanut Butter” Approach
Some founders feel that giving a little to everyone gives them skin in the game and will make them want to join a company and will also keep them there.
The benefit of the Peanut Butter Approach is that it’s simple to implement and sends a strong cultural signal that everyone has a stake in the company’s success. Even if the grants are small, they can help with recruiting, build a sense of shared ownership, and foster loyalty in the early stages of an ESOP.
The challenge with this approach is that you’re not really giving a large enough ownership stake to most individuals for the payout to be material (unless the startup is a unicorn, of course), and you will likely need to provide subsequent awards with longer service to ensure retention. The other challenge with this approach is the potential for many minority shareholders. If you take the peanut butter approach, it’s recommended that minority shareholders, or those who exercise their options, are not given voting rights to ensure that significant decisions are not driven by the minority shareholders.
Executives Only
Some boards, investors and founders take the approach that equity within an ESOP should be reserved for executives only. In the early stages of a startup, this is often done to make up for significant salary gaps to market and helps sell them on joining a riskier company for the potential for a big pay day upon exit or a future secondary offering (where employees have the option to sell some of their equity, often as part of a financing transaction).
This approach ensures the option pool is concentrated where it can have the greatest impact on driving company performance and can also create strong alignment between executives and investors around long-term value creation.
The drawback of this approach is that it can leave the broader team feeling excluded, which may limit its effectiveness in building company-wide alignment and loyalty.
Executives and Key Hires
Other founders take the approach of only giving equity to executives and key hires. Similar to the “executive only“ option, this one is designed to not only attract and retain executives, but also key positions in the organization. This ESOP strategy could mean the difference between landing the lead engineer or not.
Retention and Option Refreshes
Equity within an Employee Stock Option Plan is not a “set it and forget it” tool. As initial grants vest, their impact on retention naturally fades, which is why many companies plan for option refreshes or top-ups over time.
👉 In Part II, we cover how to budget for refreshes up front so you don’t get caught short-handed or have to renegotiate with your board.
Exceptions and Retention
Even with a clear ESOP strategy, sometimes there is a need for exceptions. This is often for the retention of key employees or to close salary gaps for candidates. With a challenging talent marketplace, sometimes companies need to offer more than the basics to seal the deal or retain key team members.
Educate Employees on Their Options
Regardless of the methodology you implement, take the time to clearly explain to employees how options work, what they could be worth, and the conditions tied to them. Equity is one of the most expensive tools a company can use, and if employees don’t fully understand the value of their ESOP, it becomes a missed opportunity to drive motivation and retention.
Final Thought
Implementing an ESOP is best done with the support of your Finance and HR teams or advisors. They can ensure your employee stock option plan is well structured to meet your goals and desired outcomes while mitigating risks and pitfalls.
At BrightIron, we’ve implemented ESOPs in hundreds of startups and seen first-hand what works. If you’re ready to dig deeper into the practical side of pool sizing and allocation, don’t miss Part II: Guidelines for Option Pools.
