Employee Stock Option Plan or ESOP is a right given to employees (including whole-time directors and officers) to purchase shares of a company at a future date and at a pre-determined price. It is one of the equity-based incentives available to employees in today’s era of globalization and has emerged as an effective tool to attract, retain and reward human capital. A stock option granted under the plan confers a right but not an obligation on the employee.

An option can be converted to shares if the holder of the option fulfils certain conditions. These conditions are the vesting criteria and can be either number of years of continued service after receiving the option, a meeting of some performance-oriented goals by the option-holder, or both. After the vesting criteria are satisfied, the option becomes “vested”. A vested option provides an option-holder with an unfettered right to “exercise” the option and is “allotted” shares of the company.

Benefits of having well-drafted ESOP Policy include:

* NOn-Cash Retention Tool

* Productive Tool For Startups

* Realization Of Ownership For Employees

* A Substitute Of Salary

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