Eligibility
Excluding directors and promoters of a company who have more than 10% equity in the company, every employee is eligible for ESOP. An employee however must meet any one of the following criteria:
- Full time or part time director of the Company
- Current employee of the subsidiary, associate or holding situated anywhere in India or abroad.
- Permanent employee working in an Indian or foreign office.
Employee Stock Purchase Programme (ESPP)
ESPP is an Employee stock purchase programme that exists in publicly traded companies where the employees can buy shares at a discounted price. Here, a percentage from the salary of the employee is deducted and contributed to the purchase of stock of the company every month. The amount of discount is subjective to the type of plan offered and can be as much as 15% less than the market price.
Eligibility
- If an employee owns more than 5% of the company’s share, he cannot subscribe to an ESPP.
- The Employee must be employed by the company for a specific period of time.
Difference between ESOPs and ESPPs
- In ESOP schemes, stocks are offered to the employees without the need to purchase shares whereas in ESPPs after-tax wages are used to buy shares.
- ESOP schemes are common when the owner transfers ownership to the employees whereas ESPPs are common in public companies.
- In an ESOP, the account is not taxed until retirement or termination of employment whereas in ESPPs capital gains are taxed when shares are sold.
- ESOPs cost more to start and administer as compared with ESPPs.
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