WHAT DOES ESOP MEAN?

WHAT DOES ESOP MEAN?

WHAT DOES ESOP MEAN?

27 Mar 2020

WHAT DOES ESOP MEAN?

Employee Stock Option Program (ESOP) is a program that provides the employees a right to be shareholders of their own company. It is possible for the employees to be the shareholders since the main aim of this program is giving incentive for the employees by giving the share of the company. Generally, Employee Stock Option Program (ESOP) is designated as a pension fund for the employees in their retirement. However, there also other aims, mechanisms, and legal standing to apply ESOP. Hereby:

 

Aims

  1. Improving the employees’ loyalty towards the company

By  relating the ESOP to the intention of the employers to work at the company, it would improve the capability of the company to carrying out their business with a solid line up. There is also another reason, ESOP encourages employees to do what is the best for shareholders since the employees themselves are shareholders and provide companies with tax benefits, thus give incentive to the owners to be extended to the employees.

  1. As a reward for the employees

The company gives out rewards to the employees based on their working time. By means of giving them rewards, the company hopes for a better performance from the employees. Therefore, the rewards are normally related to their work-hour and intentions. However, the main aim is still a hope for a better performance by the employees since they are having shares on this company.

 

Mechanisms

  1. All the share stuffs are based on their working time

The company will count the employees’ working time. By counting the working time, they determine the percentage to be given.

  1. 2 types of shares to give
    1. Gratuitous Shares
      The gratuitous shares mean that the shares are given by the company to the employers in any time, unlike the discounted shares.
    2. Discounted Shares in particular terms
      While the company is going through a dark time of investment, they would discount the shares and give it out to the employees. However, it only happens in particular time.
  1. Counting Company’s valuation

The aim of counting the valuation is to measure the business potential of the company in order to determine the shares for the employees. On this step, the auditor doesn’t only check out on company’s assets, yet, non-material factors. Eventually, after the valuation has been counted, the percentage of shares would be determined.

 

Legal Standing

  1. Law of The Republic of Indonesia No. 40 of 2007 concerning Limited Liability Companies

 

(3) The offer contemplated in paragraph (1) does not apply to issuances of shares:

  1. directed to the Company’s employees;
  2. directed to holders of bonds or other securities which are convertible into shares and which were issued with the consent of the GMS; or
  3. made in the context or re-organization and/or restructuring with the consent of the GMS.

 

Elucidation

Shares directed to the company’s employees” means amongst other shares issued in the context of ESOP of the Company with all the rights and obligations attaching thereto. Lastly, all the shareholders rights will be automatically given to each of the shareholders according to Article 61 (1&2) in this law.

Thereby, the explanation of the ESOP does work like according to its aims, mechanisms, and legal standing in Indonesian law. Lastly, ESOP would have been a breakthrough that companies have to take in order to increase the welfare of companies’ business and their own employees