Five smart things to know about Employee Stock Option Plan

1. ESOP is a programme for employees where they can own equity shares of the company they work for and participate in its growth. Companies use ESOP to attract and retain talent.

2. ESOP gives the employee the option to buy a certain number of shares in the employer’s company at a pre-determined price known as the exercise price.

3. ESOP can be exercised only after a defined time called vesting period. This is to ensure that the employee’s contribution is aligned to the ESOP benefits.

4. Exercising the options would result in a gain for the employee if the market price of the stock is more than the exercise price after vesting.

5. ESOPs enable a variable benefit to the employee and passes on the gains in the value of the equity shares of the company to the employees.



(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)