Skip to main content

Employment law for executives and managing directors

LTIP, VSOP, ESOP - do not lose money!

Executives and managing directors do not only receive fixed compensation and bonus (short-term incentive). Rather, a long-term link to the company's success is customary in the German market. In Germany corporate companies, this takes the form of long-term incentives (LTI / LTIP), in which you are allocated shares / options over a vesting period. In start ups, you participate in any exit event through real (ESOP) or virtual (VSOP) participation.

There is often a lot of money in your LTIP, VSOP and ESOP. And often even more opportunities, because the current price / value is of course only an indication of the later value. So it would be unwise to negotiate the last penny of a severance package with your employer - and leave the LTIP to its fate.

Did you know that your LTIP is under German law regularly difficult to enforce in a commercially viable way? Why? Because most long-term incentives (LTI programs) are not issued by the German entity but by a foreign entity. Take a look at the headings of the contractual documents... This is accompanied by a foreign choice of law and the jurisdiction of foreign courts (USA, Netherlands, Italy, etc.), possibly with prior arbitration proceedings. In foreign countries, forfeiture regulations are often much more generously permissible than under German law. The German Federal Labor Court regularly allows such arrangements - so that enforcing your claims in court is associated with major hurdles.

  • We know LTIP, VSOP and ESOP from both the perspective of employer and executives. As a result, we know many "breaking points".
  • We have enough experience with complicated, mostly English LTIP programs.
  • We analyze with you what opportunities and risks your current situation (termination, termination agreement offer) has on your LTIP, VSOP or ESOP.
  • We check whether your claims are actually only enforceable abroad, or whether the employer has made mistakes - with the consequence that everything is subject to (the employee-friendly) German law.
  • Based on this, we develop a negotiation strategy to secure as much money as possible from the LTIP, VSOP or ESOP despite legal hurdles.
  • If necessary, we can recommend experienced foreign colleagues if you need to enforce your claims in court. If the LTIP is governed by German law, you can rely on our extensive experience.

LTIP, VSOP, ESOP - unclear legal situation, good negotiating opportunities

Central to LTIP, VSOP and ESOP are, of course, the leaver clauses. Are you a good leaver, a bad leaver or even an intermediate leaver? The scenarios are often described in English and do not exactly fit the German legal situation - because the programs are supposed to apply worldwide. In addition, there are very different configurations: sometimes a Good Leaver is everyone who is not terminated for behavioral reasons. Sometimes everyone is a Bad Leaver who does not stay until the end.

If you want to negotiate LTIP, VSOP and ESOP, your (German) counterpart will often state curtly: he is not allowed to negotiate that, that is decided from New York, the LTI programs are non-negotiable, etc. Don't be fobbed off here. LTIPs often have discretionary clauses, which are often used. Especially since LTIP, VSOP and ESOP have no direct liquidity impact and often come from other pots, negotiation is often possible. Some companies are happy to make compromises here.

Did you know that there is hardly any relevant case-law on LTIP, VSOP and ESOP when the programs (which is rare) are governed by German law? The main reason for the few case-law is the legal uncertainty - because both parties can hardly seriously calculate the legal situation, they make a settlement agreement, so that no Court decisions a made. A vicious circle.

So far, the German Federal Labor Court has tended to be very generous with regard to bad-leaver clauses. Whereas short term variable compensation is subject to strict control by the Law on General Terms and Conditions, the German Federal Labor Court recognizes a "speculative element" in the case of VSOP and therefore allows generous forfeiture. Sounds unfair. Whether this case law is set in stone - we'll see.

For our negotiation, however, this uncertainty is also strength. If both parties have legal risks on their side, they are all the more willing to negotiate. We will take advantage of this.