Employee stock option plan (ESOP):
It means the option given to the directors, officers or employees of a company or of its holding company or a subsidiary company to purchase the shares of the company at a future date at a predetermined price. It helps the company to save liquid cash by making part payments in the form of these options. Issuing equity options to the employees themselves mitigate all the risks of involvement of outsider equity investors. Discount given to the Employees on the market price is typically 5-20%.
When are ESOP issued? They are issued when the company is in the formative stage. They provide liquidity as a certain fraction of employee compensation or incentives is postponed. They save tax. They make the employees work hard for growth of the company.