Global Vietnam Lawyers would like to introduce our valued readers to an article by Ms. Nguyen Kim Nhu & Ms. Pham Thanh Mai titled “ESOP Trust Fund – A mechanism for fair and transparent distribution of ESOP shares” published in The Saigon Times, 16-2026 (1.844) on April 16, 2026.
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ESOP in the Vietnamese context – Do ESOP shares truly reach employees?
From the perspective of modern corporate governance and human resource management, the “Employee Stock Ownership Plan”[1] (hereinafter referred to as “ESOP”) is an important component of a company’s human-capital strategy. An ESOP policy not only helps address the agency problem by aligning employees’ interests with the company’s long-term growth and motivating their performance; but it also broadens the shareholder base, thereby enhancing transparency in the company’s operations.
A research in 2023 indicates that a company’s return on assets (ROA) and return on equity (ROE) improved significantly after implementing an ESOP; moreover, the overall performance of companies adopting ESOP policies was better than that of companies without such policies.[2]
However, in practice, ESOP policies often fail to deliver their intended benefits due to a paradox: the number of shareholders does not increase materially, while a substantial portion of ESOP-issued shares tends to be concentrated in the hands of a certain group of employees – primarily members of the Board of Directors or the executive management of the company (collectively, the “Management Group”).[3]
This stems from various reasons, including how ESOP policy is developed, approved, and implemented. Under Article 69 of Decree 155/2020, the ESOP policy draft is prepared by the Management Group and submitted to the General Meeting of Shareholders (“GMS”) for approval. In practice, however, at the time of submission to the GMS, the ESOP policy often contains only general terms – such as the number of shares to be issued, issuance ratio, and qualitative distribution principles – while the criteria for selecting eligible employees are frequently not specified in detail.
After the ESOP policy is approved, the GMS typically authorizes the Management Group to implement it. Based on such authorization and the ESOP content approved by the GMS, the Management Group then further elaborates the eligibility criteria for employees to receive ESOP shares, determines the list of eligible participants, and allocates the number of shares to each person.
Because Vietnamese law currently lacks an independent oversight mechanism at this stage, the Management Group may adopt subjective selection criteria to prioritize ESOP distribution to senior executives – or even allocate the majority of ESOP shares to members of the Management Group themselves. In other words, the Management Group both decides who receives ESOP shares and may also be a beneficiary of that very decision. As a result, the conflict of interest between the GMS and the Management Group – i.e., the agency problem – may not be mitigated; instead, it can transform into another form of conflict, undermining the substantive purpose of the ESOP policy.
To address this issue, a common option is that the company should establish an independent and effective oversight mechanism throughout the implementation of the ESOP policy.
ESOP Trust Fund – A mechanism to control ESOP distribution
Trust is a distinctive legal structure in the common law system, where the doctrines of trust and equity are well established. The core of the trust concept is that the rights of possession, use, and disposition of an asset (the three fundamental powers of ownership[4]) are separated and vested in three independent parties. Under this structure, the right to possess the asset belongs to the trust creator (the grantor). The grantor transfers the power of disposition to an independent manager (the trustee) under predetermined rules, and transfers the right of use/benefit to the beneficiary. Based on the trust established by the grantor, the trustee disposes of the asset by distributing income and the asset itself to the beneficiary in accordance with the trust’s purpose.
In the ESOP context, we believe trust principles can be applied to ensure transparency and fairness in ESOP share distribution as follows: the company establishes an ESOP trust fund and transfers all ESOP shares into that fund; the trust fund then holds and manages the ESOP shares and subsequently allocates them to employee beneficiaries in accordance with pre-approved criteria.
Specifically, an ESOP distribution model via a trust fund may operate through the following steps:
Step 1 – Establish the ESOP Trust Fund
The company establishes an ESOP Trust Fund with operating rules and specific distribution criteria for approval by the GMS. When proposing the establishment of the ESOP Trust Fund, the Management Group is required to clearly define the distribution criteria and is not permitted to arbitrarily change these criteria after the fund has been set up. The ESOP Trust Fund may be administered by an internal unit independent from the Management Group, or by an external, independent, professional organization.[5]
Step 2 – Issue ESOP shares into the ESOP Trust Fund
Instead of distributing shares directly to individual employees, the company issues ESOP shares into the ESOP Trust Fund, which holds such shares during the period in which the company determines which employees satisfy the eligibility requirements for ESOP benefits.
Step 3 – Distribute ESOP shares in accordance with pre–approved criteria
Based on pre-approved criteria, the ESOP Trust Fund allocates ESOP shares to each employee once the employee meets these criteria. If an employee leaves the company before the distribution period ends or no longer meets the ESOP requirements, the corresponding shares may be returned to the ESOP Trust Fund and subsequently reallocated to other employees. This is a more flexible option than the existing mechanism, under which companies often have to repurchase shares at par value, potentially leading to a reduction in charter capital.
Under this mechanism, an ESOP Trust Fund can deliver numerous benefits to stakeholders. It helps separate the right to determine who is entitled to receive ESOP shares from the right to benefit from those shares practically exercised by the Management Group, thereby positioning the trust arrangement as a “neutral governance function” that can mediate conflicts of interest among shareholders, the Management Group, and employees.
Through an ESOP Trust Fund, the ESOP policy is less likely to be exploited as a tool for increasing the ownership rate of Management Group members. Distributing ESOP shares via the ESOP Trust Fund can enhance the company’s reputation and build up trust in the corporate governance standards among the market and employees.
The future of the ESOP Trust Fund
The rapid development of Vietnam’s capital market is raising expectations for greater transparency and stronger corporate governance standards. In that context, distributing ESOP shares through an ESOP Trust Fund may be an effective mechanism to meet such expectations.
In the future, once the legal framework for trusts is further developed in Vietnam, the ESOP Trust Fund could become an important step toward ensuring that ESOP policies truly achieve their intended purpose – benefiting employees as originally designed.
[1] In this article, the authors use the term “Employee Stock Ownership Plan” used in Decree 155/2020.
[2] “However, ESOP policies deliver the greatest effectiveness only if ESOP issuance reaches at least 10% of the total number of employees”, according to Luu Thu Quang, ‘Assessing the impact of employee stock ownership plan using the DID method’ (2024), VNU Journal of Economics and Business, Vol. 4, No. 3 (2024) 55–63, https://doi.org/10.57110/vnu-jeb.v4i3.289.
[3] Luu Minh Sang, Pham Ngoc Nhat Phuong, ‘Lack of a control mechanism – ESOP shares may be abused’, University of Economics and Law, Vietnam National University HCMC (The Saigon Times, June 2021), https://thesaigontimes.vn/thieu-co-che-kiem-soat-co-phieu-esop-co-the-bi-lam-dung/, accessed 06 April 2026.
[4] The theory of the three fundamental powers of ownership is recognized in Article 158 of the Civil Code 2015. Although the concept of the rights constituting ownership may be understood differently between civil law and common law systems, within the scope of this article and to help readers better understand the legal framework for trust under common law, the authors adopt the Civil Code approach as explained above.
[5] See at https://www.nceo.org/articles/choosing-employee-ownership-consultants, accessed 06 April 2026.
