What are ESOP?

Employee Stock Ownership Plan or popularly known as ESOP, is a qualified and well defined plan meant to benefit both employee and employer, in which a employee primarily invest in the stock of the sponsoring company.

 

The primary aim of the ESOP is used to maintain the focus of the employees on the company’s performance and to contribute more and more in share price appreciation. By giving employees an interest in company’s performance, a company believes it would encourage participants to give their best for the company and its shareholders , as they themselves are shareholders now.

How does ESOP works?

A company is which employee is working gives an opportunity to that employee to buy a pre-fixed number of shares of the company at a price which is lower than the market value and vest it after certain number of years, known as option period.

What does ‘Grant’ and ‘Vesting’ of the ESOP option mean?

Grant of the ESOP refers to the commitment that an employer makes by informing the employee of the eligibility of the available options.  Vesting of the ESOP means giving  right to the employee to own share over the period of the time.