Employee Stock Option Plans, often known as ESOPs are the most preferred incentive plan offered by Employers to Employees. A survey indicates that 92 % of organizations prefer to cover select employees in the share-based benefit plan to incentivize the workforce. A study shows that 7 out of 10 companies have implemented ESOP despite many taxation issues. Tech. companies, Financial services\u00a0 and diversified Manufacturing\u00a0 companies take the lead in ESOP. Some Companies go one step further and offer Stock Appreciation Rights Plan (SARP) \u00a0it is often rolled back by cash-rich companies where dilution of equity may be a concern<\/p>\n
ESOPs are essentially offered as incentives or rewards but employers to their employees. In fact a well designed share based incentive model will meet multiple objectives and benefit both employee and employer. This scheme is indeed innovative in the sense that it motivates the employees of a company to\u00a0 bond with the company, become participative, accountable and responsible as they emerge as the owners of the enterprise.\u00a0 This is also intended to reduce the attrition rate as these ESOPs have a lock-in period for three years normally.<\/p>\n
They tend to think that they are part and parcel of the growth of the company and need to protect the interest and growth of the enterprise and supposed to work for creating more wealth and profits for them and the company as a whole. A survey has clearly demonstrated that this ESOP has indeed shown immediate and desired results such as retention and enhanced performance of employees.<\/p>\n
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Most organizations use employee grade and performance as key considerations for determining the plan size covering only select employees. Fresh issue of shares is most preferred\u00a0 as source of benefit as 87 % of the respondents issued fresh shares. While in some cases lock in period is also relaxed and the shares are allotted on a price less than the market price to motivate them to accept the offer. The exit could be through Stock Exchanges. Normally 3 % of the paid-up capital is offered under ESOP.A vesting period of one to three years is prescribed.<\/p>\n
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From the Tax point of view, ESOPs are treated as perquisites for employees and are taxed on the difference of stock\u2019s purchase price and the selling value depending upon the period-either short term Capital gains \u00a0(15 %) or Long term Capital gains \u00a0(10%)\u2013 will apply.<\/p>\n
Periodical review and necessary changes be effected\u00a0 on the ESOP so as to make it attractive and to serve the desired objectives of the Scheme.<\/p>\n
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Get started now and for more details contact Goodwill at admin@gwcindia.in<\/a><\/strong> or give a call at +91 80122 78000.<\/strong><\/p>\n