In addition to an Employee Stock Ownership Plan (ESOP), joint stock companies in some countries are now applying a different long-term financial incentive program through share ownership for their employees called an Employee Stock Purchase Plan, also known as ESPP.

In this article, BLawyers Vietnam presents information about ESPP and the regulations of Vietnamese labor law related to ESPP.

1. What is ESPP?

ESPP is an “Employee Stock Purchase Plan” program. Like ESOP, this is a program run and operated by a joint stock company, with the aim of allowing participating employees to own company shares at a discounted price.

However, unlike the ESOP program that provides the employee with a share-based bonus or the right to buy shares at a low price for employees to immediately own shares at the time of implementation, in the ESPP program, employees contribute and accumulate a part of their after-tax salary during a certain period of time (starting from the offering date determined by the company to the date of purchase of shares) to own shares of the company in the future. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of participating employees.

In addition, due to the employee’s payroll deduction by the company as an accumulated amount to buy shares of the company at the end of the ESPP period, this program is also understood as a “share-based compensation program” for employees.

2. How does ESPP work?

To apply the ESPP program, the company must develop an offering plan that clearly states the rate of payroll deduction for the purchase of shares, the purchase price of shares, and the term of application. The rate of salary deduction can be decided by the company itself or can also be registered by the employee when implementing the ESPP.

At the end of the ESPP period, employees will receive a number of shares corresponding to the accumulated amount and the selling price of the shares.

In addition, employees can take part in the ESPP program voluntarily. The company applies the ESPP program for employees who agree to participate. In addition, the accumulated amount is considered the employee’s savings, thus the employee has the right to refuse to buy shares of the company and receive cash back before the completion of ESPP period.

3. How does the prevailing law of Vietnam regulate ESPP?

As mentioned above, from the perspective of labor, ESPP can be understood as a share-based payment of salary program.

Currently, the labor law of Vietnam has regulations on paying wages in cash. Specifically, pursuant to Article 95.2 of the Labor Code 2019, the salary stated in the labor contract and the salary paid to the employee shall be in Vietnam Dong, and if the employee is a foreigner in Vietnam, the salary can be in foreign currency.

Article 102 of the Labor Code 2019 stipulates that the employer is only entitled to deduct the employee’s salary to compensate for damage caused by damage to tools, equipment, and property of the employer under the provisions of Article 129 of the Labor Code.

Beyond the above regulations, the labor law of Vietnam has not clearly stipulated the agreement of salary deduction to buy shares. If companies and employees reach agreement on the implementation of the ESPP program, they should check further with local labor management authorities on opinions about the application of ESPP in advance.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 24 June 2023

Writer: Trinh Nguyen