Benefits of Employee Stock Option Plan (ESOP)
A. Benefits of ESOPs to Employees
1. Motivation: It acts as a source of motivation for employees. ESOPs work as bait for employees that they will be the shareholders of the company and can avail all the benefits related to it. Participation in management, voting rights, dividend rights, etc., comes under the same.
2. Benefits of Share Prices: Employees get benefitted when there is a hike in the prices of the shares. It adds additional financial benefits to the employees besides costs to the company.
3. Ownership Interest: ESOPs provide ownership interest to the employees. Employees feel motivated and there develop a sense of belongingness in their minds when they see that they can be owners of the company they work for.
4. Retirement Saving Tool: ESOPs can serve as a source of retirement-saving tools for employees. Besides provident funds and other retirement benefits, ESOPs provide financial security to employees.
5. Tax Benefits: Some ESOPs provide tax benefits, allowing employees to have more financial incentives.
B. Benefits of ESOPs to Businesses
1. Attraction and Retention of Personnel: It helps the business to retain and attract motivated employees. Having experienced employees always play an essential role in the overall growth of the company.
2. Efficient and Effective Personnel: Employees having ESOPs are more efficient, effective, and productive because they feel connected to the organisation which in turn contributes to the overall growth of the business.
3. Tax Benefits: Some ESOPs may provide tax benefits to businesses too, which can help improve cash flows and reduce tax liabilities.
4. Financial Growth: ESOP companies tend to have better financial growth than non-ESOPs companies, potentially due to heightened employee motivation and engagement.
5. Succession Planning: ESOPs provide Succession Planning to businesses to ensure stability and continuity as shareholders tend to leave/retire/die.
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