The Problem with ESOPs
Employee Stock Option Plans (ESOPs) are one of the most popular ways in which modern startup companies reward their early employees. In Silicon Valley, many companies such as Google and Facebook have used Employee Stock Option Plans (ESOPs) to lure the best talent from the market. Since these companies have become very successful, there are several multi-millionaires in the Silicon Valley area thanks to these Employee Stock Option Plans (ESOPs).
However, this does not mean that Employee Stock Option Plans (ESOPs) always work. In some cases, the objectives of both the employer as well as the employee are met. On the other hand, in many cases, Employee Stock Option Plans (ESOPs) create a lot of problems. In this article, we will have a closer look at the downside of these ESOPs. We will have a look at the downside from the point of view of the company as well as the employees.
Employee Stock Option Plans (ESOPs): Disadvantages Faced by the Company:
Employee Stock Option Plans (ESOPs) are always marketed as being financial instruments which bring democracy into companies. Many companies have reported high growth led by motivated employees and democratic decision-making process after Employee Stock Option Plans (ESOPs) were introduced. Also, ESOPs allow better financial management. The employees can defer smaller present payoffs for bigger payoffs in the future. Also, there are considerable tax advantages to using Employee Stock Option Plans (ESOPs). However, there are many disadvantages as well. Some of them have been listed below.
Employee Stock Option Plans (ESOPs): Disadvantages Faced by the Employee:
The anecdotal stories of Employee Stock Option Plans (ESOPs) multi-millionaires are more the exception than the norm. Employees also face several disadvantages when they accept a large chunk of their compensation in the form of Employee Stock Option Plans (ESOPs). Some of them have been listed below.
To sum it up, Employee Stock Option Plans (ESOPs) are not as beneficial as they are claimed to be. They too have a lot of drawbacks which both parties need to consider before they decide to use the Employee Stock Option Plans (ESOPs) as a method of compensating workers.
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