- Employee Stock Ownership Plans (ESOPs) involve granting employees ownership stakes in the company to align their interests with the company's goals and increase retention.
- Companies establish trusts that purchase company shares each year using cash contributions. Employees' individual accounts grow until retirement or leaving.
- ESOPs motivate employees and foster long-term attitudes by making them feel like owners. They are an effective compensation and retention tool while remaining affordable for companies.
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- Employee Stock Ownership Plans (ESOPs) involve granting employees ownership stakes in the company to align their interests with the company's goals and increase retention.
- Companies establish trusts that purchase company shares each year using cash contributions. Employees' individual accounts grow until retirement or leaving.
- ESOPs motivate employees and foster long-term attitudes by making them feel like owners. They are an effective compensation and retention tool while remaining affordable for companies.
- Employee Stock Ownership Plans (ESOPs) involve granting employees ownership stakes in the company to align their interests with the company's goals and increase retention.
- Companies establish trusts that purchase company shares each year using cash contributions. Employees' individual accounts grow until retirement or leaving.
- ESOPs motivate employees and foster long-term attitudes by making them feel like owners. They are an effective compensation and retention tool while remaining affordable for companies.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
- Employee Stock Ownership Plans (ESOPs) involve granting employees ownership stakes in the company to align their interests with the company's goals and increase retention.
- Companies establish trusts that purchase company shares each year using cash contributions. Employees' individual accounts grow until retirement or leaving.
- ESOPs motivate employees and foster long-term attitudes by making them feel like owners. They are an effective compensation and retention tool while remaining affordable for companies.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
Download as ppt, pdf, or txt
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Performance Management & ESOP
Major Challenge for HR Personnel
Attracting & Retaining the Quality Employees
What is an ESOP? Employee Stock Ownership Plan(ESOP) involve granting some ownership stake in the company to employees (some or all) with a view to creating ownership attitude and aligning their interests with that of the company and their stakeholders.
How is an ESOP created?
The company first creates a trust to which it makes a yearly contribution. The employees make no contribution. The company may contribute its own shares or cash. If it contributes cash, the money will be used to buy its shares from the market. Each employee has an individual account with the trust. The yearly contribution by the company to each employee's account will accumulate till he/she retires or leaves the organisation. In the event, the company buys the shares in the employee's ESOP account at the prevailing market price.
Why do companies set up ESOPs for Employees?
It is a tremendous motivator and can get employees highly involved in their jobs and focused on corporate performance.
It is vital tool to attract and retain quality employees, fostering in them long term attitudes. As a compensation tool, ESOPs offer rewards that can exceed the expectations of employees but are still affordable to the company as they are highly performance driven.
Advantages of Employee Stock Ownership Plans
Capital Appreciation Incentive Based Retirement Tax Advantages Increases cash flow
Employee Stock Option Plans are contracts between a company and its employees that give employees the right to buy a specific number of the companys shares at a fixed price within a certain period of time. Employees who are granted stock options hope to profit by exercising their options at a higher price than when they were granted.
Phantom Equity Plans (PEPs)
Phantom Equity Plans (PEPs) or Stock Appreciation Rights (SARs) provide employees with one or more benefits of stock ownership without actually making them an actual owner. It is a performance based incentive that is linked to the performance of the company as a whole as reflected in its Share Value.
Stock Purchase Plans
Stock Purchase Plans are generally used in listed Companies, wherein the employees are given the right to acquire shares of the company at a price lower than the prevailing market price. The discount could vary from 5% to 25% and is expected to act as a sufficient incentive for the employee to acquire the stock, thereby creating ownership attitudes and a focus towards corporate performance.
Which plan would Prefer?
Employee Stock Option Plan
10 things u must know about (ESOP)
What is an ESOP? Why would a company offer an ESOP? When are they given? When are they taxed? How are they taxed? What if they are listed at abroad and sold at abroad
What if they are listed and sold in India? Do I have to pay a security transaction tax if sold in India or abroad? Can I avail of Indexation? Can I invest the profit to avoid tax?
Why Company Offer an ESOP?
Owning an equity share means owning a share in the company business. Companies offer their employees shares because it is considered that having a stake in the company would increase loyalty and motivation substantially
When are they given?
It depends on company policy and your designation. There are time limits for availing this scheme. For instance, you can acquire the shares after you complete a particular period of employment. This could be a year, even longer. This is known as the vesting period, and generally ranges from one to five years. If you quit your job before this period is complete, the stock options lapse. Sometimes, the ESOPs are given in a phased out fashion -- 20% in the second year, another 20% in the third year, etc.
When are they taxed?
The ESOP is not taxed on acquiring the shares. You are taxed on the profit you make when you sell the shares or transfer them. Transfer here refers to when you gift it to someone or transfer it to someone else under an irrevocable deed (they now own it, not you).
Example of Employee Stock Option Plan:
An employee is granted the option to purchase 1,000 shares of the companys stock at the current market price of $5 per share (the "grant" price). The employee can exercise the option at $5 per sharetypically the exercise price will be equal to the price when the options are granted. Plans allow employees to exercise their options after a certain number of years or when the companys stock reaches a certain price. If the price of the stock increases to $20 per share, for example, the employee may exercise his or her option to buy 1,000 shares at $5 and then sell the stock at the current market price of $20.
Few questions about Employee Stock option Plan?
What is a stock option? Can ESOPs be used for improving performance ? Why is an option valuable? What is the ''OPTION'' in a stock option? What is vesting? What is exercise? What is exercise price? What is exercise period? What is the ideal time to exercise? What is lapse of options? If I have stock options, does that mean I own shares?
What is Vesting? Vesting has two components Vesting percentage and vesting period. Vesting percentage refers to that portion of total options granted, which you will be eligible to exercise. Vesting period is the period on the completion of which the said portion can be exercised.
The following table presents an example of an employee who is granted 200 options on January 1, 2004 with a vesting schedule of 30%, 30% and 40% at the end of one, two and three years from the date of grant respectively. Vesting Details Percentage Date Options vested
Date of grant: January 1,2004
1st Vesting 2nd Vesting 3rd Vesting
30% January 1,2005 60
30% January 1,2006 60
40% January 1,2007 80
Exercise ? What is exercise ? The activity of converting the options granted to you into shares by paying the required exercise price is known as exercise of options.
What is exercise price ? Exercise price is the price that you have to pay to convert the options into shares e.g. if the options are granted at an exercise price of Rs.30 and you want to exercise 100 options then you have to pay Rs. 3,000 (30 x 100). What is exercise period ? This is the period within which you can decide to exercise your options. This period starts from the date of vesting. What is the ideal time to exercise ? Once your options are vested, the decision to exercise stock option remains with you only. Exercising stock option is an important personal financial decision and you should consider it carefully as any other long-term investment decision
Graph Showing relevance b/w stock price & ESOP
Industrial Example HCL There HR philosophy Recruit the best Retain the best Reward the best Employee benefit has always been high priority with HCL Info systemsESOP: Rewarding performance with ownership. Our Employee Stock Option Scheme aims at creating wealth for the employees and rewarding performance with ownership. The characteristic features are as follows: It covers around 900 employees Past, Present and Potential Contribution Rewarded Risk free scheme with 5 year exercise period
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