Indonesian employers, particularly listed companies, State Owned Enterprises (“SOE”), and multinational groups, use a combination of equity‑based and cash‑based incentive plans to attract, retain, and motivate talent.

Equity‑Based Incentive Plans:

• Employee Stock Options Plans (“ESOP”):
ESOP allow selected employees to acquire shares at a predetermined exercise price and are increasingly used as retention tools across larger employers. Although not universally adopted, they are gaining recognition as part of competitive compensation structures.

• Management Stock Option Plans (“MSOP”):
MSOP are commonly granted to senior management and executives, especially in listed companies. Indonesian listed companies (e.g., financial institutions) frequently operate ESOP/MSOP schemes covering both leadership and, in some cases, broader employee groups.

• Employee Share Purchase Arrangements (“ESPP”):
Some companies also provide share-purchase mechanisms, either at a discount or under structured participation arrangements, often integrated within ESOP frameworks.

• Foreign Multinational Equity Awards:
It is also common for foreign multinationals to extend their global equity plans (e.g., restricted stock unit (“RSU”), stock options, or ESPP) to employees of their Indonesian subsidiaries.

In such cases, the shares are typically issued or transferred from the foreign listed parent company outside Indonesia rather than from the Indonesian subsidiary.

(Note: This practice aligns with global incentive structures but is not explicitly captured in the local sources above; it reflects standard cross‑border incentive practices regularly observed in Indonesia.)

Cash‑Based Incentives

Long Term Incentive (“LTI”) Cash Awards:
Many companies provide multi‑year, performance‑linked LTI cash awards to senior executives. Certain listed companies apply mixed LTI structures, offering shares for some roles and cash for others (e.g., independent commissioners).

Annual Performance Bonuses:
Widely used across virtually all Indonesian employers, annual bonuses form a fundamental part of remuneration for employees at all levels.

Coverage and Recipients
• Executives and senior management typically receive MSOP, LTI, and performance‑linked awards.
• Key talent and high‑potential employees are commonly included in ESOP and other equity‑based plans.
• Broader employee groups may be covered in wide‑ranging ESOP/share bonus programs in some listed companies.
• All employees generally receive annual bonuses and statutory allowances.

Companies may offer various forms of share option and equity-based incentive plans, depending on their corporate structure, regulatory compliance, and commercial objectives, because there is no single dedicated law in Indonesia that specifically regulates employee incentive plans. The structure of these plans is largely driven by market practice, subject to compliance with general corporate, employment, tax, foreign exchange, and capital markets regulations. Common types include:

• 1.      ESOP
  Companies may grant employees the right to purchase new or existing shares at a predetermined exercise price within a specified period. ESOP may be structured through:
  New share issuance, requiring shareholder approval;
  Stock grants; or
• Direct employee share purchase arrangements. ESOP are a recognized mechanism in Indonesia to provide employees with a sense of ownership and act as a retention tool.

2.    MSOP
MSOP are option plans tailored for senior management or executives. These provide rights to acquire shares (typically new shares or treasury shares) upon satisfying vesting conditions. MSOP are widely used in listed companies and financial institutions, with specific tranches approved and monitored through shareholder resolutions.

3.     Employee Share Allocation (“ESA”) / Share Bonus & Discounted Share Purchase Plans

Some companies (including SOE and listed issuers) operate ESA programs, which may include:

• Bonus share plans; and
• Discounted share purchase schemes. These plans function as alternative equity‑settled incentive structures parallel to options.

4.       Foreign Multinational Share Option Plans (Cross‑Border Options)
It is also common for foreign parent companies to extend global stock option plans, RSU, or ESPP offerings to employees of their Indonesian subsidiaries.
In such cases:

• Awards are typically over the foreign parent’s listed shares;
• The Indonesian subsidiary may operate as a participating employer (including cost recharge arrangements where needed). This practice aligns with global equity frameworks and is widespread in multinational groups operating in Indonesia; and
• Offers made in Indonesia may trigger Indonesian capital markets regulations if the offer is made to more than 100 Indonesian employees, and the value of the options offered within 12 months exceeds the relevant thresholds. Where these conditions are met, a stipulation may need to be obtained from the Indonesian Financial Services Authority (“OJK”), and additional procedural requirements may apply.

Similar to share option plans, share purchase plans in Indonesia are generally based on market practice and precedent. These plans are commonly structured as ESOP or ESPP, with arrangements such as the following:

1. Direct Subscription Arrangements

Employees subscribe for newly issued shares through a limited private placement.

2. Secondary Share Purchase Schemes

Employees purchase existing shares, typically from treasury stock. Purchases from controlling shareholders or through a group plan vehicle (such as a trust or foundation) are uncommon, especially for listed companies, as they may be viewed as a shareholder-level offering and attract OJK scrutiny. This is particularly relevant where the vehicle is owned or controlled by the plan sponsor, as it may raise cross-ownership concerns.

When implementing a secondary share purchase scheme, listed companies in Indonesia also need to consider that if public ownership falls below 40% of the total shareholding, the company may lose the corporate income tax incentive available to listed companies.

Regardless of the arrangement, a share acquisition or share purchase plan may be funded either through cash payments or through deductions from salary or incentives collected based on employee contributions, subject to employee consent and compliance with Law No. 13 of 2003, as amended by subsequent laws, including the Job Creation Law No. 4 of 2023 and its implementing government regulations (“Employment law”).

Other forms of long-term incentives may include the following:

1. Long-Term Cash Bonus Plans

Cash awards granted based on achieving specific performance metrics over multiple years, typically linked to individual, team, or company performance.

2. Deferred Bonus Plans

A portion of annual bonuses is deferred for a set period, often subject to continued employment or performance conditions.

3. Performance Cash Plans

Cash awards tied to achieving pre-defined performance targets, such as revenue, profitability, or strategic milestones, over a long-term cycle.

4. Phantom Share

Participants receive cash payments linked to the value of company shares or company performance metrics, without actual issuance of shares.

There are no limits under Indonesian law on who can participate in an incentive plan. However, the plan must be structured so that it does not qualify as a public offering. This means it should not be offered to more than 100 parties, result in securities being held by more than 50 parties, and have a total offering value exceeding IDR 5 billion within a 12-month period. An exemption from these criteria for employee incentive plans applies only to global listed companies and listed companies in Indonesia, subject to compliance with the disclosure, filing, and prior review requirements with the OJK, in accordance with POJK No. 29/POJK.04/2021 on Non-Public Offerings, as further clarified by SEOJK No. 33/SEOJK.04/2022.

Yes, awards can be subject to performance criteria, vesting schedules, and forfeiture. These provisions must be applied fairly and should not discriminate against any group of employees, to ensure compliance with Employment Law.

Yes, awards can be subject to post-vesting and/or post-employment holding periods. In practice, post-vesting or post-employment holding periods are more common in public companies and in sectors such as banking, financial services, and large corporate or multinational companies, especially when share-based or long-term incentive plans (e.g., RSU, SAR, ESOP) are offered. In other sectors, such provisions are less common but may still be applied on a case-by-case basis for critical roles.

Malus and clawback provisions are quite common for senior management and key employees, particularly in sectors such as banking, financial services, and large multinational corporations, where regulatory expectations or internal risk management practices encourage accountability for long-term performance. In other sectors, malus and clawback clauses are less frequent.

Participants in an equity-based incentive plan are generally subject to taxation, with no social security implications. Tax typically arises at vesting, when shares have a determinable value, and at exercise, where the difference between the exercise price and the market value is treated as employment income under Article 21 of the Law No. 7 of 1983 on Income Tax as amended by subsequent laws, including Laws No. 4 of 2023 on Job Creation (“Income Tax Law”). There is generally no tax on acquisition or holding of shares, while capital gains on listed shares are subject to a final tax on the gross sale price, and gains on unlisted shares may be taxable. For loans provided to participants, interest benefits from below-market loans may be taxable, while repayment of principal usually has no tax impact. The specific tax treatment depends on the structure of the loan and the incentive plan.

Companies operating an incentive plan generally have limited tax obligations, with no social security implications. Tax typically arises at vesting and exercise, and companies are responsible for withholding income tax under Article 21 of the Income Tax Law on the value of shares or the difference between the exercise price and market value. Acquisition, holding, or disposal of shares by employees is generally the employees’ responsibility. For loans provided to participants, companies may have reporting obligations for imputed interest.

In addition, equity-based incentive plans may constitute taxable benefits in kind for employees. Following the enactment of Law No. 7 of 2021 on Tax Harmonization and its implementing regulations, most non-cash benefits provided in connection with employment are taxable. As a result, awards such as free shares, discounted share purchases, RSU, and share options generally trigger Indonesian income tax at the time of vesting, exercise, or acquisition, based on the fair market value of the shares less any amount paid by the employee. For global or cross-border incentive plans, the Indonesian employing entity is typically required to include the benefit in local payroll, perform valuation, withhold income tax under Article 21 of the Income Tax Law, and report the transaction. Inadequate withholding or reporting may expose the company to tax assessments, administrative sanctions, and interest penalties.

The reporting, notification, and filing requirements apply only to incentive plans conducted by a global listed company or a listed company in Indonesia where the incentive plan qualifies as a public offering. In such cases, the company is required to comply with the disclosure, filing, and prior review requirements under POJK No. 29/POJK.04/2021 on Non-Public Offerings, as further clarified by SEOJK No. 33/SEOJK.04/2022. In addition, the company must report, within two business days after implementation of the program, that it has distributed the information memorandum containing the details and disclosures of the incentive plan to the participants.

Where the incentive plan involves shares granted to members of the Board of Directors (“BoD)” or Board of Commissioners (“BoC”) of an Indonesian listed company (PT Tbk), additional capital markets reporting obligations apply. These include disclosure to OJK and the public regarding changes in share ownership of Directors and Commissioners in accordance with applicable OJK regulations on reporting of share ownership by insiders of public companies.

Further, if an incentive plan grants shares or equity-based awards to Directors or Commissioners of an SOE (BUMN), the recipients are subject to asset reporting obligations under the State Officials’ Wealth Reporting (LHKPN) regime. Such individuals must report the ownership of shares or equity interests obtained through the incentive plan to the relevant authority (i.e., the Corruption Eradication Commission or KPK) as part of their mandatory wealth disclosure requirements.

Indonesian Employment Law does not require employers to compensate employees for the loss of unvested or forfeited awards under an incentive plan upon termination of employment. As such, the treatment of awards is governed entirely by the terms of the plan and the employee’s agreement to those terms. To avoid any implication that awards form part of contractual remuneration, it is standard practice to include an express exclusion clause confirming that participants have no right to compensation or damages in connection with the loss, lapse, forfeiture, or reduction of awards arising from the termination of their employment, however caused.

In practice, the treatment of awards typically varies depending on the reason for termination. Termination due to death may allow vested awards to be transferred to heirs or paid in cash; resignation may result in either forfeiture or limited compensation depending on the plan rules; and termination for cause generally leads to full forfeiture of unvested and, in some cases, vested awards without any compensation. Clear drafting and a robust exclusion clause are therefore essential to ensure the company’s discretion is preserved and to mitigate the risk of post‑termination claims.

Yes, the implementation of an incentive plan must comply with data protection requirements set out in Law No. 27 of 2022 on Personal Data Protection, especially if the company uses a third-party plan administrator to assist in the implementation of the employee incentive plan (e.g., through a digital platform that serves as an interface for participants and helps manage the program). The company organizing the incentive plan must obtain consent from employees for the processing of their personal data, including by any third parties assisting with the program’s implementation. Typically, employee consent is a requirement for participation in the program.

Yes, there are corporate governance guidelines that apply to the operation of equity-based incentive plans under Law No. 40 of 2007 on Limited Liability Companies, as amended by Law No. 6 of 2023 on Job Creation (“Company Law”), for equity offered from new shares or existing shares, which must be complied with.

If the plan involves offering new shares to employees, the Company Law provides certain flexibilities, under which prior shareholder approval is not required for issuing those new shares, subject to specific provisions agreed in the Articles of Association (“AoA”). This also applies to listed companies, where preemptive rights are not required in the issuance of shares for employees.

If the plan involves offering existing shares, which are treasury shares, the company must comply with the provisions that total treasury shares do not exceed 10% of the company’s issued capital and can only be held by the company for a maximum of three years.

In addition to the above, the AoA may provide specific provisions, which could require approval from the shareholders, the BoD, and the BoC.

Yes, securities law requirements may apply to the operation of incentive plans. Disclosure in the form of an information memorandum, filings, and prior review by the OJK may be required for listed companies and global listed companies implementing equity-based incentive plans if the plan meets the thresholds of a public offering.

A plan is deemed to constitute a public offering if it is offered to more than 100 parties, results in securities being held by more than 50 parties, and has a total offering value exceeding IDR 5 billion within a 12-month period. If these thresholds are triggered, the company must comply with the disclosure, filing, and prior review requirements under POJK No. 29/POJK.04/2021 on Non-Public Offerings, as further clarified by SEOJK No. 33/SEOJK.04/2022. Upon compliance, the incentive plan may proceed as a non-public offering and be exempt from the full public offering requirements.

For global offerings by a listed company, the information memorandum must include the following and must be substantively the same as the information memorandum used in other jurisdictions where the shares are listed:

1. the offering date of the securities or the distribution date;
2. information on the party conducting the non-public offering, including at least its name, contact details, principal business activities and prospects, shareholding structure, management structure, key financial summary, investment risk factors, group structure, and contact person;
3. the number of securities and the mechanism for implementing the program;
4. a summary of the program terms and conditions;
5. eligibility criteria for employees, members of the Board of Directors, and/or the Board of Commissioners;
6. the offering period and the securities purchase period;
7. the basis for calculating the issuance of securities under the program;
8. the subscription price, if determined;
9. the currency of payment;
10. any annual investment limits, if applicable;
11. the payment method;
12. custody or storage of the securities;
13. provisions on voting rights, dividends, transferability of the securities, and other rights attached to the securities, including liquidation rights;
14. the mechanism for cancellation of share allocations and redistribution of cancelled shares;
15. the source of the shares to be offered;
16. the vesting period, if applicable; and

Yes, specialist regulatory regimes may apply to incentive plans in Indonesia. In addition to global listed companies and listed companies whose share offerings could qualify as a public offering being required to comply with OJK disclosure, filing, and prior review requirements, certain sectors or types of business are subject to specific regulations that may affect incentive plans.

Banks, insurance companies, and other regulated financial institutions are subject to OJK prudential and remuneration requirements, including limitations on bonuses and long-term incentives. State-owned enterprises and regionally owned enterprises are also subject to certain requirements, approvals, amount limitations, and procedures with the relevant authorities.

In addition, other sectors that strictly regulate shareholding ownership must comply with specific requirements affecting the feasibility and structuring of equity-based employee incentive plans. In some sectors, companies are required to operate as special purpose companies that may only be owned by certain qualified entities, for example, shipping companies structured as joint venture companies.

There is no outright exchange control restriction on incentive plans in Indonesia. However, cross-border employee incentive plans may trigger foreign exchange disclosure and reporting obligations. For example, where an incentive plan is implemented by a multinational group and the Indonesian subsidiary acts as an intermediary in foreign currency transactions, such as coordinating employee payments to a foreign parent company or facilitating cross-border benefit flows, the transactions may qualify as foreign exchange transactions. In such cases, the Indonesian subsidiary may be required to submit monthly foreign exchange reports in accordance with Bank Indonesia Regulation No. 21/2/PBI/2019.

The formal process for granting awards under an incentive plan in Indonesia generally depends on the structure of the plan (cash-based or equity-based) and the company’s governance framework. In practice, the process typically involves the following steps:

1. Plan Design and Documentation

The company prepares the incentive plan rules, including eligibility, award types, vesting conditions, pricing, transfer restrictions, and termination provisions.

2. Corporate Approvals

The plan must be approved internally in accordance with the AoA and applicable laws. This usually involves approval from the BoD and/or the BoC, and in certain cases shareholders’ approval, particularly where new shares are issued or treasury shares are used.

3. Regulatory Compliance (if applicable)

If the plan involves equity and meets the public offering thresholds, the company must prepare an information memorandum, make filings, and obtain prior review from the OJK in accordance with POJK No. 29/POJK.04/2021 and SEOJK No. 33/SEOJK.04/2022.

4. Grant Determination

The company determines the list of eligible participants and the number and type of awards to be granted, typically through a grant resolution or committee decision.

5. Offer and Acceptance by Participants

Eligible participants receive grant documentation and formally accept participation in the plan, including agreeing to the plan rules and award terms.

6. Execution and Recordkeeping

Upon acceptance, the grants are recorded in the company’s internal registers and, where applicable, in the shareholder register or custody system.

7. Vesting and Settlement

Awards vest in accordance with the plan terms and are settled in cash or shares, subject to applicable tax, employment, and regulatory requirements.

Yes, an overseas corporation may operate an incentive plan for the employees of its Indonesian subsidiaries. However, the plan must comply with capital market regulations. If the plan meets the criteria of a public offering but is intended to be implemented without conducting a public offering, the company must follow OJK disclosure, filing, and prior review requirements to ensure the plan is treated as a non-public offering, as set out in POJK No. 29/POJK.04/2021 and further clarified by SEOJK No. 33/SEOJK.04/2022.

Yes, an overseas employee can participate in an incentive plan, as there is no general restriction, subject to whether it is permitted under the jurisdiction of the overseas employee and the applicable exchange control requirements.

Share options or awards held by an internationally mobile employee are taxed in Indonesia based on the employee’s tax residency and the source of income. Indonesian tax residents are generally subject to Article 21 of the Income Tax Law on income from vesting, exercise, or disposal of shares. Non-residents are taxed only on income sourced from Indonesia, which may include awards granted for services performed in Indonesia. Cross-border awards may also trigger exchange control reporting obligations under Bank Indonesia regulations. Employers are responsible for withholding and ensuring compliance.

Cash-based incentives are treated similarly, as employment income subject to Article 21 of the Income Tax Law. Indonesian tax residents are taxed on the full amount, while non-residents are taxed only on income sourced from Indonesia. Employers are responsible for withholding tax, and cross-border payments may trigger exchange control reporting obligations under Bank Indonesia regulations.

The observed trend is a combination of cash incentives and equity-based incentives, particularly in global incentive plans, where a vesting period is applied to the equity. For employees, equity-based incentives are typically offered in the form of ESOP or ESPP, while for top-level management, LTI are usually granted as RSU or SAR.

While there are no incentive plan specific reforms currently finalized in Indonesia, several broader regulatory developments and proposals are likely to affect their operation in the coming 12 months:

1.Capital Market Reforms & Transparency Measures: Indonesian authorities have committed to capital market reforms aimed at improving transparency, governance, and investor confidence. This includes measures such as increasing free‑float requirements and enhancing disclosure standards. While not specific to incentive plans, these reforms may influence regulatory expectations around transparency and compliance for equity incentives.

2. OJK Proposed Tax Incentives for Capital Market Activities: OJK has proposed tiered tax incentives to encourage broader participation in the capital market. If implemented, such incentives could indirectly impact the attractiveness and tax treatment of equity‑based incentives.