Employee Stocks Ownership Plan

ESOP TM
Employee Stocks Ownership Plan

PRESENTATION
BY:
-ANUSHREE MOHANTY
-GUL HANS
-SOMYA SUTAR
-LAL MOHAN NAYAK
-ARVIND BISOI
-ROOP CHAND MOHANTY
CONTENTS
 Definition
 Need of ESOP
 Implementing ESOP
 Structures of ESOP
 When ESOP
 Advantages of ESOP
 Disadvantages of ESOP
 Case Study
 Back-ground facts
DEFINITION
 Employee Stock Ownership Plan is an
employee benefit plan which makes the
employees of a company owners of stock in
that company.
 ESOPs are utilized by company to offer an

alternative and more lucrative profit sharing
plan so that the employees get more
motivated.
NEED OF ESOP
 Earlier people used to join an organization and
see a future there for a lifetime. But today
employee retention has become a key issue.
 They want returns from their jobs which can
be in the form of better remuneration, growth
prospects or even a better working
environment.
 Current trend employees are not satisfied by
their salary alone but they also want to have
an increased involvement in the company’s
decisions.
IMPLEMENTING ESOPS
 ESOP is drafting out ESOP plans specific to
that company and its employees
 For implementation of ESOPs the company

creates a trust to which it makes annual
contributions which are then allocated (in
proportion to compensation or years of
service) to the individual employee accounts
within the trust.
CONT.
 Within limits, company contributions to the

trust are tax deductible.
 The shares and other plan assets must vest

before employees are entitled to receive
them. (Vesting is a process whereby
employees become entitled to an increasing
percentage of their accounts over time.)
STRUCTURE OF ESOP
WHEN ESOP?
 Employees might join the plan and begin
receiving allocations after completing a year
of service with the company.
 Usually, an employee can join the plan after
completing 1 year of service or 1000 hours of
service within the year.
 Employees receive the vested portion of
their accounts at termination, disability,
death or retirement. Distributions may be
made in a lump sum or in installments over a
period of years.
 The option to acquire shares is generally
exercisable over a period of time.
 Since options lapse if the employee leaves
employment before the vesting period is
over, ESOPs work as an incentive for the
employee to stick around for that time.
 In a publicly-traded company employees may
sell their distributed shares on the market. In
a privately held firm, the company must give
the employees a put option on the stock for
60 days after the distribution.
ADVANTAGES OF ESOP
 ESOP's represent the ultimate approach to
corporate democracy.
 it contributes to the motivation of employee,
helps in retaining workforce, provides tax
benefits and easier financing, an incentive.
 This lead to improved efficiency,
productivity & profits.
 Tax related benefits.
DISADVANTAGES OF ESOP
 The equity of the company is being diluted.
Leads negative effect on the Earning per Share.
 ESOPs are a form of profit sharing plan, so
when provided, they show a difference
between the market price and price offered.
 Employees might lose much of their retirement
savings by over-investing in company stock in
their plans.
 There are employees who job hop from one
start-up to another only because they are in
search for the best deal in stock options.
CASE STUDY
BASED ON A STUDY AT INFOSYS
AGENDA
 VENDOR PROMISES
 Faster time to market
 Improved customer responsiveness
 Supply effectiveness
 OPERATIONAL REALITIES
 IT dept. are still fighting for the same problem.
 Line of business is still not getting benefits.
 NEW SOLUTIONS & DECISION MAKING
 Competitive tension between Brands.
BACK-GROUND FACTS
PROBLEM IDENTIFICATION
 Competitions faced between companies.
 Problem in decision making.
 Companies are still trying to understand the
problem.
 Cost
 Integration
 Complexity
BACK-GROUND FACTS
SOLUTIONS
 Too much is still in IT’s hands so the decision
making points are
 Objectives & Coverage
 Coverage
 Pricing
 Dilution
 Vesting
 Policy
"the ESOP is treated as
simply an employee
benefit, but is really a
device to save the
human race"
-Lewis Kelso
founder of modern ESOP
DAT’S ALL BOUT
R
PRESENTATION.
QUESTIONS
PLZZZ!!!

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Employee Stocks Ownership Plan

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ESOP TM

Employee Stocks Ownership Plan

 ESOPs are utilized by company to offer an

 For implementation of ESOPs the company

 Within limits, company contributions to the

 The shares and other plan assets must vest

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