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HRM Presentation 1 (ESOP)

An Employee Stock Ownership Plan (ESOP) allows employees to become owners of stock in the company they work for. It is an equity-based deferred compensation plan that is unique in its ability to borrow money and invest primarily in the sponsoring employer's securities. ESOPs are commonly used to reward, retain, and attract employees, especially senior and middle management. While ESOPs provide tax advantages and incentive-based retirement benefits, they also carry fiduciary liability risks and can lack liquidity depending on stock performance. Major Indian companies that offer ESOPs include Bharti Airtel, Wipro, Infosys, and others.

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28 views

HRM Presentation 1 (ESOP)

An Employee Stock Ownership Plan (ESOP) allows employees to become owners of stock in the company they work for. It is an equity-based deferred compensation plan that is unique in its ability to borrow money and invest primarily in the sponsoring employer's securities. ESOPs are commonly used to reward, retain, and attract employees, especially senior and middle management. While ESOPs provide tax advantages and incentive-based retirement benefits, they also carry fiduciary liability risks and can lack liquidity depending on stock performance. Major Indian companies that offer ESOPs include Bharti Airtel, Wipro, Infosys, and others.

Uploaded by

chetnak21
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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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

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