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Employee Stock Options, commonly
known as ESOP, confer upon the employees, right to buy
shares in their employer company at a future date and
in a predetermined manner. The concept of ESOP evolved
to make the employee feel one with the company she/he
works for and align their interest with that of their
company�s.
Being a relatively new concept,
many employees are still finding their way around
here. This section is for the benefit of such
employees (and others as well) who want to know about
ESOP. As always, we have tried our best to be as clear
as possible, but any queries are always welcome. |
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Q. What is an Employee Stock Option?
A. Employee Stock
Option, or ESOP, is just what its name suggests � option to
buy stocks (shares) for the employee. Your employer company,
in an act of appreciation for your work, may give you the
option of buying stocks or shares at a future date but at the
rate determined at the time of rewarding you. Thus, if the
value of your company�s stocks goes up, you benefit. But if it
goes down, don�t worry. You can discard your option. There is
no risk involved for you.
Q. Can ESOP be used
for improving performance?
A. As aforementioned,
ESOP enables the employee to buy shares in her/his firm. This
in turn creates an environment of ownership and the employee
is encouraged to think and act like an owner. Thus this would
definitely improve individual as well as group performance.
ESOP is often declared as a potent award in companies for
employees performing exceedingly well.
Q. Why is an option
valuable?
A. An option is
valuable because unlike regular clients and shareholders, you
have been given an option for purchasing shares. If the value
of the company shares goes up, you can buy as many shares in
accordance with the price determined at the time of the offer.
However, if your company shares value go down, there is no
need for you to buy shares. Remember the right conferred upon
you is an OPTION, NOT AN OBLIGATION.
Q. What is the
�option� in ESOP?
A. The option in ESOP
is the commitment by the company to offer you part of their
shares if you fulfil all the conditions mentioned in ESOP
Plan.
Q. What is vesting?
A. Vesting period and
vesting percentage are the two components of vesting. While
the latter refers to the total options offered to you, the
former refers to the period on the completion of which the
said portion can be exercised.
Q. What is exercise?
A. Exercise or
exercise of options is the activity of converting the options
granted to you into shares after paying the required exercise
price.
Q. What is exercise
price?
A. As mentioned above
exercise price is what you pay to convert your options into
shares. Like if the price is Rs.10 and you want to exercise 50
options, then the exercise price becomes Rs.500/-
Q. What is exercise
period?
A. ESOP is not a
permanently available option. You have to exercise the same
within the stipulated time period and this time period is
called exercise period. This period starts from the day of
vesting.
Q. What is the ideal
time to exercise?
A. Exercising your
options is a personal investment, and should be taken
seriously. We advice you to get in touch with your financial
advisor or CA for the market is subject to risks and no
investment should be done in a haste or with half knowledge.
Q. What is lapse of
option?
A. If you do not
exercise your option within the specific time period, or in
cases such as separation, abandonment etc., your options lose
validity and this is known as lapse of option.
Q. If an employee has
stock options, can it be taken as shares?
A. Please see � as an
employee, you have stock �options�. Stock �options� are NOT
the same as stocks/shares. While stock options can be
converted to stocks/shares, they do not mean the same thing.
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