Employee Stock Options (ESOs)

Employee stock options (ESOs) are basically a equity compensation granted by companies to their employees and executives. Rather than granting shares of stock directly, the company gives derivative options on the stock instead. These options come in the form of regular call options and give the employee the right to buy the company's stock at a specified price for a finite period of time

There are vesting period linked to all ESOs. For example, you would get ESOs amounting to 0.1 percent of company's share after you complete 5 years. After the ESOs got vested, the ESOs can be converted to normal equity shares and those can be sold into the open market. The idea behind the ESOs is to make sure that important employees stay on and not leave the organization 

There are also other 2 types of Stock Options:

• Incentive Stock Options (ISOs): ISOs are also known as statutory or qualified options. This is generally offered only to the key employees and top management

• Non-Qualified Stock Options (NSOs): NSOs are granted to employees at all levels in a company including board members. This is also known as Non-statutory Stock Options

Few of the recent ESO announcements are:

• ICICI Bank allocates 9,53,570 equity shares of face value Rs.2 each on 13th September 2021 under the Employee Stock Option Scheme

• Paytm staff, ex-employees convert ESOs to shares worth Rs.182 Crores. Based on Paytm's last valuation of $16 billion (about Rs.1.2 Lakh Crore), these converted ESOs worth Rs.182 Crores

• Hospitality major OYO increases its ESOs pool by 41% with the addition of another 20 Crore shares. This is taking total of 63 Crore Shares as of 15th September 2021

• Axis bank has allotted 1,08,519 equity shares with a face value of Rs. 2 each on 13th September 2021 under its ESOP scheme

Have a Great Day

B G Nareshkumar