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Employee Stock Option Plan

Definition: An Employee Stock Option Plan (ESOP) is a benefit plan for employees which makes them owners of stocks in the company. ESOPs have several features which make them unique compared to other employee benefit plans. Most companies, both at home and abroad, are utilising this scheme as an essential tool to reward and retain their employees. Currently, this form of restructuring is most prevalent in IT companies where manpower is the main asset.

Description: Abroad, ESOP (where the 'O' often stands for ownership) is seen when employees buy over the stock of an owner or promoter who is relinquishing charge. In India, ESOP is used largely to motivate employees to put in their best and in turn, help the company enjoy lower employee turnover and retain its talent pool. These two uses probably account for over two-thirds of all ESOPs now in existence, and their numbers are expected to increase with time.

Interestingly, many companies abroad use ESOPs as a technique of corporate finance for a variety of purposes -- to finance expansion, to make an acquisition, to spin off a division, to take a company private, and so on. This has yet to catch on in India, perhaps because the scale of ESOP so far is too small for many of these uses.

So far as the future of ESOPs in India is concerned, as more and more companies realise the need to retain their best talent in a world which would be dominated by companies with the best intellectual capital, this management technique would be the phenomenon of the new century.

Also See: 360-Degree Feedback, Competency Mapping, Conflict Management, Job Description, MBO, MBWA, Mentoring, Pink Slip, VRS

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