What is ESOP in Share Market? A Complete Guide for Employees and Employers

Understand ESOPs in the share market and their significance for employees and organisations. Explore definitions, benefits, structures, and valuation methods in this comprehensive guide.
APPLY NOW
Leverage the power of financing to buy ESOPs!
APPLY NOW
3 mins read
13-October-2025

Employee Stock Ownership Plans (ESOPs) are reshaping the modern workplace by connecting employee success directly with company growth. Instead of being passive participants, employees become stakeholders who share in the company’s value and achievements. An ESOP in the share market not only rewards loyalty but also helps companies distribute ownership more equitably making employees feel truly invested in the organisation’s journey. It’s a win-win arrangement that builds motivation, financial growth, and a shared sense of purpose.

Want to buy your ESOP shares without dipping into your savings? Get ESOP financing to convert your stock options into ownership easily and affordably.

What is ESOP in share market?

An Employee Stock Ownership Plan (ESOP) in the share market is a structured programme that allows employees to acquire company shares. The goal is to align employee interests with the company’s success by making them co-owners. In practical terms, ESOPs enable employees to purchase shares at a predetermined price often lower than the market rate once they complete a vesting period. Over time, as the company grows, so does the value of these shares. In the share market, ESOPs improve liquidity by allowing employees to sell shares during authorised events like company buybacks, public offerings, or secondary sales. This flexibility turns ESOPs into a smart financial tool, especially in start-ups and listed companies where wealth creation potential is high.

Understanding ESOPs

ESOPs are designed to give employees real ownership in the company. Instead of a simple bonus or incentive, they offer an opportunity to hold a financial stake in the organisation’s growth.

Each ESOP is governed by a structured plan that includes a vesting schedule a timeline over which employees gradually gain ownership rights. This encourages long-term association, since full ownership only occurs after serving the required duration.

Start-ups, tech companies, and even established enterprises increasingly rely on ESOPs to attract and retain skilled professionals. When employees know that their contributions directly affect share value, their commitment naturally deepens.

Loan Against Shares
Loan Against Mutual Funds

Definition of ESOP

An Employee Stock Ownership Plan (ESOP) is a formal arrangement introduced by a company to grant or sell shares to its employees. It is not just a perk it is a structured equity benefit programme. Each plan includes specific details like:

  • Vesting period – How long an employee must stay before earning full ownership
  • Exercise price – The price at which employees can buy shares
  • Valuation method – The approach used to determine fair share value

This structure ensures transparency and fairness in how ownership is shared. It also strengthens trust between employees and management, helping build a collaborative work culture.

Want to own a stake in your company? Apply for ESOP financing to exercise your stock options easily and take your place as a shareholder.

Benefits of ESOP for employees

ESOPs go far beyond monetary rewards they create a sense of ownership that drives long-term engagement. Some of the key benefits include:

  1. Financial rewards: Employees gain ownership stakes, building long-term wealth.
  2. Motivation: ESOPs align employee efforts with organisational growth.
  3. Job satisfaction: Ownership fosters a sense of belonging and purpose.
  4. Retirement planning: ESOPs create a financial safety net for employees.
  5. Long-term commitment: Vesting schedules encourage employees to stay longer.
  6. Skill enhancement: Employees feel motivated to improve their performance.
  7. Wealth creation: Share price appreciation benefits employees financially.

How ESOPs work in the share market?

The ESOP in share market works through a structured process. Here is how:

  1. Granting options: Companies offer stock options to eligible employees based on role, performance, or tenure.
  2. Vesting period: Employees must stay for a certain duration before they can claim ownership rights.
  3. Exercise stage: Once vested, employees can buy shares at the exercise price (usually lower than the market value).
  4. Liquidity event: After exercising, employees can sell their shares during buybacks, IPOs, or other permitted events.

This process helps employees participate in wealth creation while maintaining company stability. It’s a system that motivates performance while offering tangible financial rewards.

ESOP valuation methods

Valuation is a crucial step in any ESOP. It determines how much each share is worth and ensures fair allocation. Common valuation methods include:

Valuation Method Description
Fair Market Value (FMV) Determines share value based on market trends and company performance.
Discounted Cash Flow Calculates future cash flows, discounted to present value, to determine share worth.
Market Comparables Uses valuation metrics from similar companies in the same industry.
Net Asset Value (NAV) Assesses the company’s total assets minus liabilities to calculate share value.
Black-Scholes Model A statistical approach to evaluate options by considering volatility and time.


Valuation ensures employees receive shares at a fair and transparent price maintaining trust and credibility in the ESOP system.

Tax implications of ESOPs in India

ESOPs (Employee Stock Ownership Plans) have become increasingly prevalent in the Indian share market, driven by several key trends:

Talent acquisition and retention:

  • ESOPs have emerged as a powerful tool for attracting and retaining top talent, particularly in high-growth sectors like technology, fintech, and e-commerce.
  • By offering a stake in the company's success, companies can motivate employees and foster a strong sense of ownership.

Increased competition for top talent:

  • In a competitive job market, companies are constantly seeking innovative ways to differentiate themselves.
  • ESOPs provide a unique value proposition for employees, making them a valuable tool in the talent acquisition war.

Startup growth and funding:

  • The rise of startups in India has significantly boosted the adoption of ESOPs.
  • Many startups use ESOPs as a key component of their employee compensation strategy, aligning employee incentives with company growth and attracting early-stage talent.

Shift towards long-term growth:

  • ESOPs encourage employees to think long-term and contribute to the sustained success of the company.
  • By aligning employee interests with shareholder value, companies can foster a culture of long-term growth and sustainability.

Government initiatives:

  • The Indian government has been supportive of ESOPs, recognizing their potential to boost employee ownership and promote entrepreneurship.
  • Various government initiatives have aimed to simplify the process of implementing and managing ESOPs.

Popular Companies Offering ESOPs:

  • Technology giants: Google, Microsoft, Amazon, Meta, Apple
  • Fintech startups: Paytm, Razorpay, CRED, PhonePe
  • E-commerce companies: Flipkart, Amazon India, Meesho
  • Edtech platforms: Byju's, Unacademy, Vedantu

Common ESOP structures

ESOPs can take several forms depending on company policy and objectives:

  • Time-based vesting: Employees earn ownership over a defined timeline.
  • Performance-based vesting: Ownership is tied to individual or company performance.
  • Leveraged ESOP: The company borrows funds to buy shares for the ESOP trust.
  • Non-leveraged ESOP: The company directly contributes shares or cash to the ESOP.
  • Cashless exercise: Employees sell shares immediately after exercising, covering costs without upfront payments.
  • Stock appreciation rights: Employees receive the value difference between the grant price and market price.
  • Restricted stock units (RSUs): Shares are granted based on meeting certain conditions, such as tenure.

Conclusion

ESOPs have evolved into a cornerstone of modern workforce management, connecting personal achievement with company growth. They build trust, reward contribution, and promote wealth creation turning employees into long-term partners in success. In the share market, ESOPs also play a larger role by enhancing liquidity and broadening ownership. Whether you are an employee planning to exercise your options or a company structuring an ESOP, understanding how they work is key to maximising value.

Turn your stock options into real ownership today. Apply for ESOP financing and take your first step towards becoming a shareholder in your company.

Frequently asked questions

What are the eligibility criteria for ESOPs?
Eligibility for ESOPs typically includes full-time employment, and performance benchmarks. Independent directors and promoters are generally excluded, with specific criteria set by the company’s ESOP policy.

How does an employee benefit from an ESOP?
Employees benefit from ESOPs through financial rewards, ownership stakes, and potential wealth creation as share prices appreciate. ESOPs also foster job satisfaction, motivation, and a sense of belonging within the organisation.

Can companies revoke ESOPs?
Yes, companies can revoke ESOPs under specific circumstances, such as employee misconduct, resignation before vesting, or breach of employment terms, as outlined in the company’s ESOP policy and agreement.

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 Low Cost 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