Employee Benefits: ESOPs can be risky but profitable

Understand growth prospects of the start-up you work for before accepting employee stock options

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Esops

Employee Benefits: ESOPs can be risky but profitable

Early in their life cycle, most start-ups encounter cash flow problems. Profits tend to be low or non-existent. At this stage, retaining and motivating key employees who can help the company grow also becomes a challenge as such ventures lack the resources to offer compensation that is at par with industry standards. Granting employee stock options (ESOPs) is one solution that is widely adopted by start-ups to deal with the twin problems of liquidity crunch and talent retention. A well drafted ESOP plan can create a sense of ownership among employees so that they are motivated to contribute more, while at the same time reducing the company's immediate cash outflow. Before accepting ESOPs from a start-up company, however, employees need to weigh the pros and cons of this form of compensation.

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