Finding a way to retain Employees? Cannot increase cash outflow by increasing salaries?

This thought constantly runs in the minds of Entrepreneurs that is easy to solve by providing Employers with a new take on ESOPs.
Employee Stock Option Plans is one of the strategies that is attracting, remunerating and retaining employees for any organization. This Strategy is something more than financial strategy that benefits both Employers as well as Employees.

Seeing the benefits from the Employers point of view, it helps them to maintain Liquidity, Motive and thereby improves productivity within the organization along with certain tax benefits in the hands of Employers. In a way, ESOPs are very fruitful for an organization as it renders entrepreneurs the option to hire and retain great talent without having to commit huge salaries that thereby solves liquidity issues of an organization. In a way, it also builds sense of belonging and accountability in the minds of the employees that is v helpful in growth and success of a company.

Understanding, What exactly is an ESOP ?

ESOPs is a type of Employee benefits scheme under which company offers its shares/stock options to Employees at a predetermined rate that is usually at discounted price.

Why should we offer ESOPs to Employees ?

• These options are granted to Employees to encourage them by acquiring ownership in the form of shares that helps in generating sense of belonging in the minds of employees.
• These stock options are also offered to retain high quality employees for the benefit of organization.
• It is tax favored strategy
• No Liquidity burden in the hands of Employers
• It creates a new sense of Transparency and accountability that creates more than just a play where employees are willing to work .
• It helps in growth and success of an organization as well.

Having explained ESOPs in brief, Statistics suggest that ESOPs improves an overall performance of an organization. And Companies that offer ESOPs continue to over perform companies that don’t offer ESOPs.

Seeing Benefits from Employees Perspective

Firstly, Employees have the benefit of acquiring shares at a nominal rate, and also selling it after a suitable tenure set by the employees and gaining the profit. If, for instance, the share prices of the company boom up, then a good deal of profit is gained by selling the share by employees. To clear it, ESOPs are a part of an employee’s salary, and hence, are taxable income. Hence, Taxed as per the provisions governed under the Income Tax Act, 1961.

Before deciding to grant ESOPs, it is crucial to understand the terms and conditions & Processes pertaining to ESOPs as Rules and laws pertaining ESOPs are quiet Stringent for which you definitely need help of an Expert who can help you understanding the process, laws, rules and policies to be set up for granting ESOPs in your organization and you also need to understand some very important points before issuing ESOPs.

The Important points that company should definitely take care of are for which you may need Expert Advice:
1) Who are eligible Employees to whom options can be granted?
2) Understanding the Process for issuing ESOPs.
3) Understanding compliances that needs to be followed every year by ESOP companies.
4) Understanding Documentation part for issuing ESOPs.
5) Understanding Taxation in the hands of Employer as well as Employee.
6) What happens to ESOPs when employees leave the company?
7) What happens to ESOPs when company is sold?