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Employees Stock Option Plan (ESOP)
An Employee Stock Option Plan (ESOP) is a reward scheme for employees which makes them owners of shares in the company. ESOPs have many distinguished features which make them unique compared to other traditional employee benefit plans. Most companies, both in India and abroad, are making this employee benefit plan as an essential tool to reward and retain their employees appropriately. Currently, this form of restructuring is most prevalent in IT and other service sectoral companies where manpower is the main source for running the company operations. This scheme is mainly intended to attract new talented employees and to retain the existing human resources of the company.
In Olden days :
The basic idea behind providing an employee stock options in early days was to save cash compensations. It was considered as a tool to motivate the employees so that maximum output can be generated from the human capital and even to save cash reimbursements for some of the cash strapped companies. These plans are over and above the salary of the employee but not in monetary form directly.
ESOP – Vesting period :
Generally this is the lock in period for the employee. It is a pre defined date on which the stock option can be exercised by the employees.
Example :
If Mr Raju has been given an option of ESOP with a vesting period of 3 years on 2nd April 2015. Then he can exercise the option on April 2nd of 2018 at the vested price.
ESOP – Perquisites :
It’s purely in the hands of the employees to decide whether to exercise the option or not.If they exercise the option then the tax implications will be “The difference between the market value of shares as in the date of purchasing and the vested price at which it was offered and subscribed by the employees is taxable by adding it to the Perquisites of employees salary” For listed companies, the market price on the exercise day is usually considered as the fair market value. For non-listed companies, the fair market value is determined by a Category I merchant banker registered with the Securities and Exchange Board of India, the stock market regulator. Recommended Articles
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