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What is the purpose of ESOP? And also please explain its advantage and disadvantages to employees?

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posted Jun 15 by Naveen Kumar

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1 Answer

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The basic proposition is simple: people work better if they are working for themselves. Hence businesses that are owned by those who work in them are more likely to be successful than those owned by outsiders.
Following can be the advantages
Align employees’ interests with those of shareholders;
Recruit or retain key employees;
Compensate for lower salaries and relieve pressure on cash flow;
Lower the supervision required of employees;
Increase innovation;
Increase shareholder value;
Motivate employees to become more productive;
Improve the communication between employee and managers and increase cooperation;
Increase loyalty and reduce staff turnover;
Increase employee job satisfaction;

Following can be the disadvantages
Where the share price of the company’s shares does not increase and the employee feels they have no control over the share price outcome, then it can affect morale and retention;
There are costs associated with establishment and administration of the ESOP;

answer Jun 15 by Vijay
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