How does Employee Stock purchase plan work?
Different companies have different rules and regulations for their employee share purchase plan or ESPP. Usually companies offer an ESPP window once a year. All employees interested in employee share purchase plan need to update the company and their desired monthly contribution before the ESPP window commences. Till the window period is open, the monthly salary of the employee is deducted as per his selected contribution. At the end of the window period, the employee can purchase stocks of the company using the money accumulated. Various companies have distinct ways to reach to a stock price for the share and offer a discount on that price for the employer.
Employee Stock Options (ESOPs) are the option to buy your company’s shares at a future date, at a pre-determined price (most often discounted from the market price of the share). The price is determined at the time the ESOP is granted. There are ESOPs that give employees the right to buy warrants or bonds too. Equity shares are the most popular route. The process of converting your options into shares by paying the pre-determined price is known as exercising your options. Suppose 100 options were granted at Rs. 50 each, you would need to pay Rs. 5,000 (100 x 50). For more information, read this blog post - https://blog.bankbazaar.com/esops-can-make-you-rich-if-you-understand-them/.