Challenges in Indian starts up with the implementation of ESOP

Abstract

In India, with increasing interest in startups, the use of equity compensation has increased by a significant margin. It has been noticed that ESOPs are generally used as part of stock-based compensation by early-stage startups or small businesses. Since ESOPs can be used as a mechanism to attract and retain employees, it is considered a powerful tool to enhance productivity and create a high-performing workplace.

While in practical terms, ESOPs are similar to the stock options of private companies. ESOPs are granted to select employees wherein an employee is allotted a particular number of shares in the company at a certain price that can be purchased after a predefined period of time. In this regard, the adoption of ESOP in India is driven by the need for better management and alignment of interests that can be achieved by empowering employees with an ownership stake.