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Employees Stock Option Plan (ESOP)

An employee stock option plan (ESOP) is a type of employee benefit plan which is intended to encourage employees to acquire stocks or ownership in the company. Under these plans, the employer gives certain stocks of the company to the employee for negligible or less costs which remain in the ESOP trust fund, until the options vests and the employee exercises them or the employee leaves/retires from the company or institution. These plans are aimed at improving the performance of the company and increasing the value of the shares by involving stock holders, who are also the employees, in the working of the company. The ESOPs help in minimizing problems related to incentives.

Today, ESOPs are an integral part of executive compensation. ESOPs are now spread across the IT, services and manufacturing sector. Such stock based compensation involves granting some ownership stake in the company to its employees hence synergizing interests of the employees and the company.

Though increasing ownership in the company, it puts “a lot of eggs in one basket”. While you may be justifiably proud of your ownership in your company and like to see it grow as you work hard, holding a concentrated position in a single stock comes along with an opportunity cost and liquidity risk. The performance of your wealth is dependent on various factors, not the least being how the industry shapes up and how the market values the stock. As you keep working with your company, your intellectual capital (technically speaking, the present value of all your future earnings from the company) still remains tied in with the fortunes of your enterprise. Hence, it may be a wise idea to appropriately distinguish between your intellectual capital and financial capital and manage them according to the risk-return parameters inherent in them.

As you begin to think about managing from your concentrated exposure, you will need access to independent and well researched advice on strategy (whether to use futures and options, what quantum to bring into play), low-cost financing for the exercise, compliance timings (to avoid insider trading) and a carefully planned diversification strategy. At KFintech , we have the best in class team to assist you in all aspects of managing your ESOPs.

At KFintech, we assist the corporate in implementing ESOP Schemes in compliance with SEBI ((Share Based Employee Benefits) Regulations, 2014. Our scope involves assisting the corporate in setting various parameters like; number of options to be granted, vesting schedule, exercise price, etc. advising on drafting of various resolutions required to be passed and drafting of the scheme and obtaining in-principle approval from the Stock Exchanges.

1-800-309-4001(Monday to Saturday from 9 AM to 6 PM.)

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