Stock Options - An HR Approach

Employers use Employee Stock Option Plans to compensate their employees. Employee stock option plan can be define as follows.

"Under Employee Stock Option Plan companies grant employees right to purchase company shares on some future date at a specific price".

As definition shows that this is only a right to purchase company stock on some future date and employees are not actually given anything physically. In this method of compensating employees employer give employees right to purchase company's shares at specific rate on future date which is mostly 5 years. It means that Employer grants right to employee to purchase 10,000 shares of business for say Rs.100 per share after 5 years, now suppose the price of one share is 150 after 5 years. Now employee can earn Rs.50 per share which will made him Rs.500,000.

Benefits for Employees:          There are so many benefits for employees. First of all they get handsome amount of cash after they exercise their right. They feel sense of ownership into the company and this eventually give them job security as well.

Benefits for Employer:          Employers get their employees motivated by giving them Stock Options and as this is a promise for future date so an employee has to stick with company for some years to exercise his right to purchase share which reduces the Turnover of company.


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