Purpose and benefits of ESOPs for companies and employees

Employee Stock Ownership Plans (ESOPs) benefit companies by improving employee retention, motivation, and performance through ownership stakes. For employees, ESOPs offer financial incentives, aligning their interests with the company's success, and providing potential wealth accumulation over time.
APPLY NOW
Get funds to buy ESOPs!
APPLY NOW
3 mins read
13-October-2025

Owning a piece of the company you work for is an empowering feeling. That is exactly what Employee Stock Ownership Plans (ESOPs) make possible. They allow employees to become shareholders, giving them a direct stake in the company’s growth and success. Beyond being a reward, ESOPs strengthen trust, encourage loyalty, and create a sense of belonging among employees because your success is directly tied to the company’s performance.

Planning to exercise your ESOPs but short on funds? Get the capital you need through ESOP financing and convert your employee stock options into actual ownership. Apply now

What are employee rights in an ESOP?

An ESOP gives employees rights to company shares. Depending on the plan, employees may enjoy:

  • Ownership rights: They receive shares allocated to them over time.
  • Voting rights: In some cases, employees can vote on company matters.
  • Distribution rights: They can receive the value of their shares when they retire, resign, or are terminated.

These rights are governed by the company’s ESOP policy and local legal provisions, ensuring transparency and fairness for all employees.

Vesting period and employee rights

The vesting period is the duration an employee must serve before gaining full ownership of allocated shares. During this period, shares are earned gradually ensuring that employees stay committed for the long term.

Once vested, employees gain full ownership and can benefit from dividends or share appreciation. Unvested shares, however, remain with the company until the vesting condition is fulfilled.

When your options vest, be ready to act. ESOP financing helps you exercise your shares on time, so you do not miss your ownership window. Get started now

How employees benefit from ESOPs

ESOPs come with multiple benefits beyond ownership:

  • Financial growth: Employees gain from share price appreciation over time.
  • Retirement security: ESOPs act as a form of long-term savings.
  • Motivation and loyalty: Ownership strengthens emotional connection with the company.

These benefits make ESOPs a smart way to reward dedication and align employee goals with business success.

Loan Against Shares
Loan Against Mutual Funds

ESOP distributions: employee entitlements

Employees can receive their shares or cash value after leaving the company or retiring. Key points include:

  • Employees are entitled to receive their shares after retirement or leaving the company, depending on company’s policies
  • Distributions are generally made in lump sums or installments, depending on the plan.

Some ESOPs may allow employees to exercise their options early under specific circumstances, such as disability. This means that even if the vesting period hasn't been fully completed, employees in these situations may have the opportunity to purchase company shares at the predetermined exercise price.

Employee rights on leaving the company

When an employee leaves, their rights depend on the company’s vesting and ESOP policy:

  • Employees retain rights to the shares they have vested upon leaving the company depending on the vesting policies of the company.
  • Unvested shares are forfeited back to the company.
  • In most cases, employees must sell back their shares to the ESOP or company at fair market value.

Legal protections and employee rights under ESOPs

Legal frameworks safeguard employee interests in ESOPs. These include:

  • Legal provisions ensure that employees receive their fair share based on the vesting period.
  • The ESOP must provide clear information about share allocation and distribution.

Employees are protected against unfair dismissal related to their participation in the ESOP. In India, employees participating in ESOPs are generally protected against unfair dismissal related to their participation in the plan. This protection is provided under various labor laws and regulations. However, it's important to consult the specific terms of one’s company's ESOP plan and the applicable labor laws in India to ensure that you have adequate protection.

In India, such safeguards fall under various labour and securities regulations. Employees should review their company’s ESOP policy carefully to understand their entitlements and recourse options.

ESOP employee rights vs. traditional stock options

While ESOPs grant employees direct ownership in the company, stock options provide the right to purchase shares at a fixed price. Here is how they differ:

  • Ownership: ESOPs grant ownership automatically; stock options require purchase.
  • Risk: ESOPs are less risky since employees don’t need to invest upfront.
  • Flexibility: Stock options offer more flexibility in timing purchases but carry market risks.

Both serve as tools for employee retention, but ESOPs offer a more secure and structured path to wealth creation.

Common challenges employees face with ESOPs

While ESOPs are rewarding, employees often face:

  • Liquidity concerns: Difficulty accessing funds before share distribution.
  • Complex taxation: Understanding tax implications at vesting and sale.
  • Valuation issues: Fluctuating company valuation may affect payout value.

Awareness of these challenges helps employees plan better and make informed financial choices.

Conclusion

ESOPs empower employees by giving them a share in the company’s growth and future. They promote loyalty, create wealth, and enhance job satisfaction. However, understanding ESOP employee rights is key to maximising these benefits. From vesting schedules to legal safeguards, every detail matters. And when the need for liquidity arises, ESOP financing ensures you can meet your financial goals without losing your equity stake.

Own your success quite literally. With ESOP financing, you can purchase your company’s shares and turn your stock options into wealth. Apply for ESOP financing today!

Frequently asked questions

Can employees sell their ESOP shares anytime?
Employees generally cannot sell their ESOP shares anytime. The ability to sell is typically limited until they have fully vested and left the company. Additionally, ESOP shares often must be sold back to the company or the ESOP itself.

How does an ESOP differ from a 401(k)?
An ESOP grants employees ownership through company shares, while a 401(k) is a retirement savings plan allowing employees to invest in various funds. ESOPs focus on company stock, whereas 401(k)s offer broader investment options.

What happens to my ESOP if the company is sold?
If a company gets acquired, employees might have the chance to cash their ESOPs. In some cases, however, employee stocks may be transferred to the acquiring company or they may be able to cash out only a portion of their stock. When a company receives funding or sells stake, there is a scope for ESOP monetisation. However, sometimes only the founders have the option to sell their shares, while employees don’t. Additionally, as the company sells more stake, the value of employees’ stock may decrease due to dilution, but its value increases.

Create 30-40 words content

Show More Show Less

Related videos

Bajaj Finserv App for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.

Explore and apply for co-branded credit cards online.

Invest in fixed deposits and mutual funds on the app.

Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.

Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.

Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.

Shop from over 100+ brand partners that offer a diverse range of products and services.

Use specialised tools like EMI calculators, SIP Calculators

Check your credit score, download loan statements, and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.
For customer support, call Personal Loan IVR: 7757 000 000