ESOPs, the Employee Stock Ownership Plans is the current term that has created a lot of buzz in the business world. ESOPs is the term that offers employees a chance to have ownership in the firm. It recognizes the best performing employees and rewards them with an equity stake or cash based on an equity stake.
The definition of ESOP was originally introduced in the Companies Act, 1956, which underwent a complete change in the Companies Act, 2013.
An Employee Stock Ownership Plans aids to retain high-performing employees and provides cost-effective company benefits. There are two types of ESOPs- selective plans and all-employee plans. While the selective plan is only for the senior executives, all employee plans provide the same facility to all employees of the company.
However, various myths and facts are revolving around ESOPs that need to be addressed. Here are 3 facts every employer and employee must know about ESOPs:
1. ESOPs are for everyone
ESOPs are for every organization that is generating profit to support the annual costs of maintaining the ESOP. The profitability of the company is more important than a company`s size. In a profitable ESOP organization, the tax savings alone can be enough to offset the annual costs.
2. Company`s Operations Remain Unaffected
Many company owners feel that after establishing an ESOP, they will have to consult their employees on regular basis regarding the company`s operations. However, the matter of fact is that the management remains in control of the company. Even when the ESOP owns a majority, there is no loss of control of the company.
3. No detailed financial information is to be disclosed
An ESOP is a qualified retirement plan. Hence, the participants must be provided with the annual statement demonstrating the number of shares and the value for their benefits. No other financial disclosures are required by the organization to its employees who are a share-holder.
The companies offer ESOPs to attract more qualified employees. They do it in a phased manner and provide stocks at the end of the financial year to reward their impressive performance.
Many companies startups and companies that can`t provide high packages, offer ESOPs to their employees. We hope we have shed some light on the current trending term- ESOPs. For more information, visit www.badabusiness.com
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