Benefits of ESOP
Employee stock option plan, commonly known as ESOP schemes, give employees an opportunity to own shares in the company as a form of financial compensation. The scheme offers many perks, both short-term monetary again and retirement savings. In simply terms, ESOP plans focus on employees having a share of employer securities.
1. Financial gain
When employees receive shares through the employee stock option plan, they can effectively gain a part of ownership. Through ESOP, employees can buy shares in form of a discount, or they might get the shares through compensation or as a profit sharing scheme. That way, employees can generate revenue from the shares when the stocks trade higher.
2. Consumer retention
The best way of retaining loyal employees is to allow them to buy stocks in the business. When employees partly own the company, it is unlikely that they will look for other opportunities. On the other hand, employee stock options also increase overall productivity and help in staff retention. As a result, employees will do their best since they own the company, and more importantly because of the financial gain they hope to achieve when the company makes profits.
3. Retirement benefits
Employee stock options also provide retirement programs as an incentive to encourage more employees to buy stocks. Moreover, employees receive cash benefits if they are disabled or after retirement. The best thing about this program is that employees enjoy financial liquidity. In case of an emergency, they can sell their shares, either to pay off a mortgage or to pay off university loans.
4. Tax benefits
Employees also enjoy tax deductible donations to the scheme. Employees can either contribute shares or cash to the scheme.
Despite having appealing tax benefits, there are drawbacks and limits to ESOPs. For starters, ESOPs are not applicable in partnerships. On the other hand, employees in private firms must repurchase stocks of departing staff.