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Incentive programs are one ofthe most effective tools for attracting and retaining talent — especially at startups and scale-ups competing against better-resourced companies. But the differences between the main program types are substantial. This guide explains what KPOs, warrants, and direct share purchases involve, and helps you pick the right structure.
Why set up an Incentive Program?
A well-designed incentive program solves a central challenge for growth companies: how to offer ompetitive compensation without burning through cash. The program lets employees share in the company's value creation — building loyalty, motivation, and a genuine ownership culture.
Particularly valuable for:
• Startups that can't match market salaries but want to attract senior profiles.
• Scale-ups that need to retain key people during a critical growth phase.
• Established companies linking compensation to continued business growth.
Qualified Employee Stock Options (KPOs) — the most favorable option
If your company meets the legal requirements, KPOs are in most cases the best choice. They combine the lowest administrative burden, the lowest tax risk, and the least risk for employees of any available structure.
What is a KPO?
A KPO (Kvalificerad personaloption — Qualified Employee Stock Option) is a promise from the company to issue existing or new shares at a predetermined price to employees or board members. Key characteristics:
• Can be issued for free — unlike warrants, recipients do not need to pay for the option itself.
• Exercise price can be set at par value — independent of the company's market value.
• Tax-exempt benefit — after at least three years 'vesting, neither the recipient (employment income) nor the company (employer contributions) is taxed on exercise.
• Vesting condition — the recipient must remain employed throughout the vesting period; if they leave, the option lapses.
Conditions for KPO Eligibility
The company must:
• Be unlisted.
• Have fewer than 150 employees and a net turnover or balance sheet total below SEK 280M.
• Have been conducting business for at least three years.
• Not operate in certain restricted sectors (e.g.,banking, finance, insurance, law — see the full list in Chapter 11a of theIncome Tax Act).
The option must:
• Have a vesting period of at least three years.
• Have an exercise window of no more than five years.
• Not be transferable.
The recipient must:
• Be employed by the company (board members withoutemployment may qualify under certain conditions).
• Not own — together with related parties — more than 10%of the company's shares.
Warrants — an alternative when KPOs are not available
Warrants are a security (unlike employee stock options, which are contract-based). They grant the holder the right to subscribe for shares in the company at a predetermined price during a specified period.
Key differences from KPOs:
• Require a shareholders' meeting resolution and registration with the Swedish Companies Registration Office — more administration.
• Must be priced at market value — a warrantissued for free is treated as a taxable benefit (benefit tax + employer contributions).
• Benefit taxation occurs at acquisition (not at exercise), increasing the employee's risk.
• The holder may sell the warrant on the open market.
To avoid benefit taxation under a warrant program, the company needs a defensible valuation and carefully drafted option terms — for example, the program typically cannot be conditional on continued employment.
Direct share purchases
A third option is allowing employees to buy shares directly — either from existing shareholders or through a new share issue. This requires the company to be ready to welcome new shareholders, and the transfer must take place at market value.
Comparison: KPOs, Warrants, and Direct share purchases
The right choice depends on your company's specific situation. In summary:
• KPOs: Lowest cost, lowest tax risk, lowest administrative burden — choose this if you qualify.
• Warrants: More flexible but more expensive and administratively heavier. Use if KPO requirements aren't met.
• Direct share purchase: Simple but requires immediate payment at market value and means bringing in new shareholders right away.
Next Steps
If you meet the KPO requirements, it is almost always the right choice. If you're unsure, reach out and we'll help you design an incentive program tailored to your circumstances and goals.
Book a free online meeting here
More related articles:
Sweat Equity: How startups use equity as compensation
Incentive programs: KPOs, Warrants or Stock options. Which to choose?
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