ESOP

What The Hell is ESOP?

ESOP stands for Employee Stock Option Plan Option = not a share. It is the right to buy a share later at a price fixed today.

The company is not giving you a piece of it. It is giving you permission to buy a piece of it.

Last week we saw the founder's slice shrink. ESOPs are carved out of that same pie, and this is the slice they offer you instead of cash.

Real World Example & Calculation:
-> Offer letter says ₹35 lakh a year. ₹30 lakh cash, plus ESOPs worth ₹5 lakh.
-> That ₹5 lakh is 1,000 options, because the company values one share at ₹500 today.
-> Your strike price Strike price = what you pay to turn one option into one real share is ₹100.
-> So owning all 1,000 shares costs you ₹1,00,000 from your own pocket.
-> You earn them slowly over 4 years, with a 1 year cliff Cliff = quit before 12 months and you get zero.
-> Leave after 2 years and you have earned 500. Pay ₹50,000 and they are yours.

That ₹5 lakh was never sitting in your account.

You can only turn those shares into real money when the company gets bought or lists on the stock market.

If neither happens, you paid ₹50,000 for paper and gave up ₹5 lakh of salary to get it.

✍🏻 Mantra Joshi

Spotted a wrong number or something out of date? Tell me and I'll fix it.