INTRODUCTION TO EMPLOYEE STOCK OPTION PLAN

Employee Stock Option Plan or ESOPs are is popularly known as is a concept used by the companies wherein they grant shares to the employee and they become the shareholders in that company. Through Employee Stock Option Plan the employee gets a right to purchase a specific number of shares in that company at a pre-determined price and time period.

ESOP fulfill dual motive in an organization. It acts as an external motivation for the employee to work and improve their performance as well as helps the employer to retain the company. It is offered by the company in parts and as per schedule. The time period given to the employee under ESOP is called the vesting period or the waiting period. The employee has to exercise his right to purchase within the vesting period. If the right is not exercised within the stipulated time then the offer lapse.  

ESOPS is commonly used by IT companies, who also happen to be the first ones to introduce this concept in India. As of now, most companies use ESOPS to motivate their employees. However, it must be noted that the employees are not under obligation to buy the shares under this scheme. This scheme acts as an option for the employees. ESOPs are offered if certain conditions are fulfilled by the employee, such as: 

1. A continued period of employment
2. It is also granted when an employee fulfills the performance-based plan set by the employer

There are two kinds of ESOPs offered by a company: 

1. Non-compensatory plan
2. Compensatory plan 

Under the non-compensatory plan, the employee does not get any compensation. The main purpose of this category is to raise the capital of the company or diversify the ownership. Compensatory plans are those under which the employees are compensated. This means that the service provided by the employee is partially compensated by the issuance of shares of the company in his favor. This type of plan is commonly used by the company to motivate their employees.

There are various advantages of using the Employee Stock Option Plan such as: 

1. It acts as an opportunity for the company to pay without a reduction in the books. 
2. Acts as a motivator for the employee
3. Helps in improving the performance of the employees
4. It creates a sense of ownership and belongingness among the employee of the company 
5. Helps in aligning the interest of the managers with the interest of the owners. 

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.