Employee Stock Ownership Plan

Organizational Behavior

Presented By-Sayantan Roychoudhury

Definition• ESOP- Employee stock ownership plan

is a type of employee benefit plan which

is intended to encourage employee to

acquire stocks or ownership in the

company.

• The concept was introduced by Lawyer and investment banker Louis Kelso of USA in 1950s’

In World

• ESOP was introduced in India in 1994 by

Infosys .• Comes under AS15 of ICAI which is Retirement benefits in employee’s

financial statement

In India

BACKGROUND

Improve shareholder

value

Motivate the employee

Retirement plan

Wealth creation for employee

Enhance retention

Sense of belonging and

ownership

OBJECTIVES

To create an additional employee benefit

Incentive based retirement

Company reduces its tax liability

NEEDS

• It operates through a trust which is setup by company.• It provides to the employees in long term .

• Employees with minimum 3 years of service is eligible for ESOP.• The option continues till the age of 60,when employee get an option to diversify

his accounts.• It is profitable to those employee who stay back in the company.

Companies using ESOP in India

ADVANTAGES

2000 Employees of Infosys have shares worth of Millions, 2004

In 2005 Every employee was

covered and ESOP was linked to loyalty and

performance

ESOP makes the attrition

rate of employees to 4%-5% in comparison with 18% of IT industries

DISADVANTAGES

Preference-The younger staff

preferred the bonus in cash or incentive in comparism with

ESOP

Lower Payout-Share price received by employees may not be as good as

they would get if the stock were publically

traded.

High Expense-ESOP plans high

creation and administration cost

CONCLUSION

The wealth creation potential of ESOP has been fully explored in India

ESOP are not still considered in many organizations in India

ESOP is advantage for both company and employee