• Produces very high benefits for participants when very high share price growth is achieved.
  • Can be designed to have nil taxable (using regulatory table of time vs exercise price premium).
  • CGT provisions can apply to growth in value at disposal of underlying shares.
  • When options are preferred and tax is to be deferred until future sale of underlying shares, alongside an expectation that employees can sell shares at the time of exercise (within around 5 years of issue).


  • Highest risk of producing nil or low benefits for participants if very high share price growth is not achieved.
  • Optimal plan in only very limited circumstances of very high share price growth.
  • Can be too dilutive due to high number of PEPOs that need to be granted due to low values at grant.
  • Participants need to fund the exercise price, which can create financial risk of future loss if they cannot sell shares at that time.

About PEPOs

PEPOs are options where the exercise price is set at a significant premium to the current share price when the PEPOs are granted. They are rarely used and when used are mainly used for senior executive incentive plans. However, PEPOs may be used for ESOPs and therefore could be considered. They are a form of option and therefore many of the advantages and disadvantages applicable to options equally apply to PEPOs.