1. ESOP
 ESOP: Employee Stock
Ownership Plan

2. What is ESOP?
 ESOP may be defined as a part of Employee
benefit plan under which employees buy, at a ‘fair’
value, the stock of the company and they may
become owners of the company for which they
work.
 The concept of ESOP was introduced by lawyer
and investment banker Louis Kelso of USA in
1950’s.
 In India, ESOP comes under existence in 1987.
 ESOP may comes under AS-15 of ICAI, which is
Retirement benefits in Employer’s financial
statement.

3. What is need for ESOP?
 To buy the shares of a departing owner.
 To borrow money at a lower after-tax cost.
 To create an additional employee benefit.
 Capital appreciation.
 Incentive based retirement.
 Tax advantage.
 Company reduces its tax liability.

4. How ESOP works?
 It operates through a trust which is setup by the company .
 Tax deductible contributions are distributed to individual
employee accounts within the trust.
 Employee with minimum 1 years of service or 1000 hours of
work in a year is eligible for ESOP.
 Employee with minimum 10 years of participation in ESOP
and 55 years of age, accounts upto 25% diversification on
his/her account.
 This option continues until age 60, when employee get a
one-time option to diversify his/her account upto 50%.
 Employee receive the vested portion of their accounts at
termination, disability, death or retirement.

5. Major Indian companies using ESOP
 Wipro
 Infosys
 Dabur
 P&G
 HLL
 ONGC
 Tata technologies
 ICICI Bank
 Bharti tele-ventures

6. ESOP with respect to Wipro
 WIPRO’s employees together have stock
options for 50 lakh equity shares of a
nominal value of Rs.2 each. The plan covers
executive and non-executive directors but
excludes promoter directors. The staff
turnover at WIPRO is as low as 4-5 percent
against an industry rate of 18-20 percent.
This shows the biggest advantage of ESOP,
that is, employee retention.

7. Caveats of ESOP
 Investors object why employees should be given a
stake in the company at fair market value. It dilutes the
per share worth of existing investors.
 Law does not allow ESOP to be used in partnerships.
 Plan committee members can be held responsible if
they knowingly participate in improper transactions.
 As value of stock appreciates substantially ESOP may
not have sufficient funds to repurchase stock.
 With decrease in value of the company ESOP seems to
be less attractive to the employees.

8. Conclusion
 Though having some threats, ESOP is
advantageous. It is used by the
companies to Reward, Retain, Attract
talent, Create a sense of Ownership in the
company and a Retirement benefit
scheme. Hence, it improves the corporate
performance as a whole.

9. Presented By:
Group 6
Section D
MBA (General)
Batch 2006-2008