An employee stock option plan (ESOP) is an employee benefit plan that gives employees an ownership interest in the company.

It has various benefits for the company as well as to the employees

ESOPs gives the right to own a part of the company to the employees also
ESOPs are given at a discounted price which means that employees only pay a nominal amount for the shares.
A part of the profit is distributed among the shareholders in the form of dividends, when employees get the shares of the company they can earn additional income as dividends which is a direct benefit of their efforts done for the growth & profitability of the company

There are different types of ESOPs

Employee stock option scheme(ESOS): ESOS is the most commonly used form for employee ownership. The option granted confers a right but not an obligation on the employee. Stock options are subject to vesting, requiring continued service over a specified period of time. Upon vesting of options, employees can exercise the options to get shares, by paying the pre-determined exercise price.
Employee stock purchase plan(ESPP): Employee Stock Purchase Plans allow employees to purchase Company’s shares, often at a discount from Fair Market Value. The terms of the Plan determine the tenure and price for possession of the Company’s shares by the Employees. Usually, ESPPs are being framed for offering shares as a part of public issues.
Phantom stocks/SAR: It is a form of long-term deferred compensation using Company shares as the measuring device for calculating the value of the deferred compensation. It simulates the Company shares in everything except that does not represent true ownership.
Restricted stock units(RSU): RSUs are stocks of the employer, given to the employee as mentioned in the employee’s compensation letter, without any contribution from the employee. However, such allotment of shares comes with certain restrictions, on the time frame to sell the same.

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