Employee Stock Ownership Plan (ESOP) - Definition & Meaning

Published in Human Resources Terms by MBA Skool Team

What is Employee Stock Ownership Plan (ESOP)?

ESOPs are the plans which offer company’s stocks to their employees at rate, which is below the market rate.

The exact usage policy might differ from one organisation to the other, but the generally the organisation fixes a minimum period, after which these stocks can be liquidated at Market price.  Nowadays, most companies offer ESOPs to their employees.   The advantages of the plan are as follows:

  1. The employees feel that they are more closely linked to the company. The company’s stock performance becomes important for them personally. Hence, this is a great way to connect the company and the individual employee.
  2. It is generally also awarded as a reward for good work by the employee.
  3. It also acts as a retention tool, as the employee having ESOPs would be enticed to stay longer if he is expecting good returns on his shares after some time.
  4. For start-up companies, who do not have much money in the beginning ESOP become an alternative to very high salaries

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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