A company’s Employee Stock Ownership Plan (ESOP) is more than just a financial incentive that employees receive. When leveraged efficiently, it can be helpful in team-building.
The culture of every company is as different as the companies themselves. Just like strategies for operations and management activities differ for each company, so is the case with implementing ESOPs in organisations.
Hence, it is important to customise ESOP strategy for best possible outcomes for the organisation.
Here are some of the key benefits of a tailored ESOP strategy.
- Attraction and Retention of best talent:
Tailored ESOPs can be a powerful recruitment tool. Companies can attract talent by presenting the opportunity to potential employees of becoming owners in the company via ESOPs and share financial benefits.
A customised ESOP helps in aligning the goals of employees and company. It plays a great role in establishing what company and employees want from one another.
- Succession Planning:
ESOPs can be a part of the succession planning strategy as they provide a flexible and tax-favourable strategy for business owners. Tailoring ESOPs strategy that suits the unique structure and goals of a company can help in ensuring a smooth transfer of ownership. Hence, providing a feasible option for founders or owners to eventually leave the business.
- Empowerment, Development and Training:
Tailored ESOPs empower employees by giving them a voice to be part of the decision making process of the company.
More often than not, ESOPs involve education and training workshops and programs for employees to understand its financial aspects. This knowledge can be helpful in their personal and professional development.
- Wealth Accumulation:
ESOPs are also often given to employees who have been part of the startups from its early days, giving them an opportunity to gain financially from the startup’s growth in business value.
Such employees can tap a sizable return when there are exit opportunities during funding rounds, mergers and acquisition deals, or IPO. In 2021, when Freshworks went public in the US, more than 500 employees at the B2B SaaS company became crorepatis.
- Job Security and Retirement Benefits:
Customised ESOPs contribute to job security for an employee. Since they are motivated and invested in the well-being of the company they have a feeling of stability. An ESOP plan comes with a number of benefits and retirement benefits is one of them. In other words, it offers a financial cushion to the employees for their future.
A tailored ESOP plan is crucial for a company’s long-term growth and prosperity. It should consider financial realities, workforce dynamics, and cultural differences. A generalised plan may lead to financial losses, while a tailored plan ensures relevance and inclusivity for employees across different departments and hierarchical levels. It also aligns with the company’s values and goals, fostering a sense of ownership and alignment with the company’s culture.
Creating a customised ESOP is not just a strategic move, it can be one of the first few steps towards the long term success and growth of the company. There is a lot to learn before implementing ESOP and what better way to understand it better than real world stories.
In the end, it is important to remember that the key to unlocking an ideal ESOP is in realising the unique requirements of your company.