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ESOP

Concept Briefing:

Employee Stock Option Program or Employee stock ownership program - ESOP is an employee incentive program which grants stock options for the company's own stock, often to upper-level employees. An employee stock option is identical to a call option on the company's stock, with some extra restrictions. An ESOP normally specifies: The number of options granted to the employee
  • The options' exercise price
  • The options' expiration date
  • The options' vesting schedule, specifying when options may first be exercised
  • A list of restrictions on what can and can't be done with the options

    The usual rationale given for stock option grants to employees is to "align employees' interests with the interests of stockholders". If the company's stock rises, its employees with stock options experience a direct financial benefit; this, the argument goes, will give employees incentives to always behave in a way that will boost the company's stock. This is supposed to increase productivity and increase vigilance for such things as corporate waste. Simply granting stock, rather than options, would achieve this same effect, but this would cause a more immediate dilution of stockholders' equity, and would usually give away some voting rights (which option holders do not have).

    Need more information on ESOP?

    13.02.2007. 22:18

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