FREE online courses on ESOP - Understanding ESOP - Introduction
Employee Stock Ownership/option/equity Plans have a fairly
long history in the Western market economies but are of a very recent origin in
our country. Ever since Luis Keslo structured an employee ownership plan in
1957, acquiring external funds for employees to purchase new equity, Stock
ownership and Option plans have come a long way in their variety as well as
their intensity of application.
In the U.S. it is estimated that 9% of all stock is held in
different forms of ESOP.Stock
Option and equity linked plans became fashionable in the UK during the seventies
and have been steadily growing. Similar is the case with Belgium, France,
Germany and other European countries. It is estimated that several transitional
economies and the NICs have found Stock Options, if not the ownership plans, a
useful instrument serving multiple objectives. Organizations in countries like
Pakistan, China and those in the Middle East have also begun to examine the
feasibility of such plans, even though the capital markets are not very active
as yet.
In the USA, ESOP is not equivalent to the stock option plans
that we, in India, normally refer to – the need for the distinction arises due
to the tax concessions and funding possibilities associated with an ownership
plan.
In that sense, we do not have “ESOP” schemes in India but
only equivalents of
Executive stock options
Non-qualified stock options
Incentive stock option
Equity
linked performance plans
Stock
appreciation rights and the like
More recently, the SEBI guidelines have used terms
Employee Share Option Scheme (ESOS) and Employee Share Purchase Scheme
(ESPS) that in due course may gain ground replacing the mistaken acronym
of ESOP. In USA the term ESOP stands for Employees Stock Ownership Plan.
These are the plans were employees own substantial
part or the entire company. The Promoters of the company implement this
plan with the objective of passing on the ownership to the employees.
