ESOP stands for Employee Stock Ownership Plan, and it is a right, not obligation of an employee to buy the company’s equity share at a pre-determined price and time, provided vesting conditions are satisfied. They can exercise ESOP and obtain equity.
What are the different types of ESOP?
Under Equity Settled Plans:
1. Employee Stock Option Plan (ESOP) – Employee stock ownership plans, or ESOPs, allow employees to acquire a share in their firm.
2. Restricted Stock Units (RSU) – Restricted Stock Units (RSUs) are a type of stock-based compensation for employees. They are subject to restrictions during a vesting period, which often lasts several years, during which they cannot be sold. Once vested, RSUs become regular shares of company stock that can be sold or held.
3. Employee Stock Purchase Plan (ESPP) – An Employee Stock Purchase Plan (ESPP) is a benefit program that lets employees buy their company’s stock at a discounted price, often up to 15% below market value.
Under Cash Settled Plans:
1. Share Appreciation Rights/Phantom Units – A stock appreciation right (SAR) gives the holder the right to receive the monetary value of any increase in the price of a specified number of shares over a certain period. Phantom stocks, on the other hand, are similar and are usually paid in cash but can also be paid in shares.
2. Cash Settled Restricted Stock Units (CS-RSU) – A cash-settled alternative to restricted stock is a right to receive a cash payment equal to the value of a share after it vests, instead of receiving the actual shares as with restricted stock.
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