ESOP Series is an attempt to address all the aspects from ideation of ESOP till its implementation.
In simple terms, ESOPs are the equity linked compensation plan, wherein options are granted to the employee for purchasing or subscribing the Company’s shares at a pre-determined price (at market value or at a discounted price which is fixed on the date of issuance of the option), at a future date, upon completion of certain vesting conditions. The vesting conditions may be performance based (of the Employer or Employee) or time based.
Upon fulfilling the vesting condition, the ESOPs vest to the Employee, i.e., the Employee gets an unconditional right to subscribe or purchase the shares of the Company at the pre-determined price.
The objective is to motivate the employees to perform better and improve shareholders’ value. Apart from giving financial gains to the employees, this also helps in creating a sense of belonging and ownership amongst the employees.
The best part of ESOP as a compensation strategy is that it allows the company to link the variable pay of employees with their individual performance or Company performance, etc.
Hence, ESOPs are incentive tool as well as retention tool.
To sum up this series in a diagrammatic presentation: