ESOP

Employee Stock Ownership Plan

 Meaning of ESOP

Employee Stock Ownership Plan (ESOP):

• An ESOP is a defined contribution employee benefit plan that allows employees to
become owners of stock in the company they work for.

• It is equity based deferred compensation plan.

• First, only an ESOP is required by law to invest primarily in the securities of the
sponsoring employer.

• Second, an ESOP is unique among qualified employee benefit plans in its ability to
borrow money.

• It is used as , "leveraged ESOPs" as a technique of corporate finance.

 ESOP MODEL

Whom to give

• Normally limited to senior and middle management layer.

When to give

• It ranges between 2-7 years, from the time of vesting of the shares.

How much to give

• 0-20% lower management.

• 20-40% middle management
• 40-80% higher management
 Types Of ESOPs

• Employee Stock Option Scheme (ESOS):

Under this scheme, the company grants an option to its employees to acquire
shares at a future date at a predetermined price.

• Employee Stock Purchase Scheme (ESPS):

This is generally used in listed companies, wherein the employees are given the
right to acquire shares of the company immediately, not at a future date as in
ESOS, at a price lower than the prevalent market price.

• Phantom Shares / Share Appreciation Rights (SAR):

Under this scheme, no shares are offered or allotted to the employee.
 Need Of ESOP

Reward
Enhance Retention
Performance

Attract Talent Reward Loyalty

 ESOP Administration: indirect v/s direct model

SHARES/LOANS

EMPLOYER TRUST

CASH

SHARES
EMPLOYEES
(DIRECT MODEL) (INDIRECT MODEL)
 Advantages/Disadvantages

Advantages Disadvantages

•Incentive Based Retirement •Fiduciary Liability.

•Tax Advantage •Liquidity

•Company reduces it's tax liability •Stock Performance

 Major ESOP In India

• Regulated by Securities and Exchange Board of India through SEBI

(Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999

• BHARTI AIRTEL came out with an ESOP Scheme in 2005.

• Wipro, Infosys

• Grasim Industries , IL&FS Investment

• EICHER Motors, INDIAINFOLINE

• India Bulls, Axis Bank

• RELIGARE Enterprises , NIIT

• JINDAL STEEL & POWER LIMITED AND WELSPUN INDIA