Question

explain in details 250 words please

Employee Stock Ownership Plans (ESOPs)

Answer 1

Companies provides incentives to employees in place of cash or salary hikes in the form of ESOPS. ESOPs provide stock options to employees and hence partnership in the firm. The employees can exercise their right to sell these shares immediately, or wait for further capital gains. Many companies are providing these option because of certain benefits which are enlisted as below.Apart from salary companies provide ESOPs as a means of profit sharing to employee. They are provided free to employees as part of their remuneration package.
1. ESOP encourages employees to work to improve Return on equity , increase efficiency and profitability since they will also benefit from it.Since returns of company and return of the employees are aligned they will perform better.
2. It helps in reducing agency problem.Agency problem arises due to conflict of interest between promoters of company or stockholders  and the management. ESOP(Employee Stock options) are provided to employee so that they can also benefit from increasing share value. Since management donot want takeover bids by competitors due to job security issues but higher pay and ESOPS can align their interests with the shareholders.
3. These are non taxable trust. Contribution to ESOPs are non taxable and it is a very good investment for employees.

There are certain adverse effects of ESOPs which are as follows
1. It cause dilution of ownership to the owners of the company. If the company is performing well then it might be a loss to the promoters of the company.
2. If the stock price is plummeting and the performance of the company is not upto the mark then it will demotivates the employees and it can have negative effect on the employees as well as the company,