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ESOP vs RSU

 Here's understanding the difference between all three, and which one is most suited in what context...


👉🏼 An Employee Stock Option Plan (ESOP) gives the employee the right to purchase a few shares of the company at a discounted pre-determined price on a later date.


Say, the company issues you ESOPs at Rs 10 per share, and there is a buy back plan or IPO after 4 years when the share price is Rs 100 per share...


If the employee decides to purchase the ESOP after 4 years, he has to pay just Rs 10 for an item that's valued at Rs 100... making him Rs 90 per share.


👉🏼 A Restricted Stock Unit (RSU) is when the company grants you a few shares depending on the time elapsed in the organization... at the end of the vesting period, you don't have the right or option to buy the shares of the company as in the case of ESOPs...


Instead shares of the company are transferred to you without you having to purchase them at a pre-determined price.


So, RSUs are a guarantee to number of shares based on your vesting schedule, while ESOPs give you an option to buy shares, which you may or may not exercise.


👉🏼 Phantom Stocks or Share Appreciation Rights (SARs) work in a way where you don't get any shares in the company... 


But your compensation can be linked to the valuation of the company on a particular date or event.


This can also be offered to people who aren't employees, but could be consultants...


And for the company, you don't get such employees or SAR holders on the cap table, but still compensate them for their time and effort in the company.

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