Employees Stock Option Plan (ESOP). Here we are providing complete details for ESOP (Employees Stock Option Plan). In this article, you can find full details for ESOP Like the Vesting Period, Perquisites, etc. Check Details for Employees Stock Option Plan (ESOP)in India, we also try to provide Accounting Treatment, PPT Presentation, etc in our next articles. Recently we have provided complete details on highlights of the Economic Survey.
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Employees Stock Option Plan (ESOP)
An Employee Stock Option Plan (ESOP) is a reward scheme for employees that 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 an essential tool to reward and retain their employees appropriately. Must Read GST on Google Adsense Earnings.
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 the Olden days :
The basic idea behind providing employee stock options in the early days was to save cash compensations. It was considered a tool to motivate the employees so that maximum output could 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. Must Check List of Ind AS.
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, 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. Must Check Accounting Equation.
