An Option to Incentivise Key Employees In the Company
A company is only as good as the outstanding employees it can retain. Employees need incentives and benefits to keep up productivity. One way to do that is through the Employee Stock Option Plan (ESOP) options in Malaysia.
Operating costs for a company can be expensive. To keep the profit high, you need to keep your expenses low. However, you also need to retain good employees without putting too much of a dent in your overhead budget. At the same time, you need to keep your employees motivated to keep morale up. One day to achieve all of the above without incurring too much cost is through the Employee Stock Option Plan (ESOP) approach.
What Is an ESOP?
An ESOP is stock options that you grant to a specific employee of the company. With the ESOP, employees can buy a certain number of shares in the company. The price of the shares is predetermined. ESOPs are different from your regular exchange-traded options since it isn’t generally traded on the exchange. Employees also need to wait for a specified time before they can carry out the option.
Why ESOPs Work
ESOPs in Malaysia work well because it makes the employee feel like they have a vested interest in the company. The more the company grows, the more they stand to gain. An ESOP is just one of the many ways you can keep your employees incentivised.
It works because this exclusivity makes the employees feel a sense of belonging. In a way, it lets them know that their long-term service and loyalty is appreciated and valued. The shares can be part of the employee’s remuneration package and a benefit that is added on after a certain number of years in service.
The Vesting and the Exercise Period
ESOPs in Malaysia have a vesting period and an exercise period. For example, the vesting period for the employee stock option plan would be the period between the offer date and vesting date. The employee has this time to meet the conditions of the ESOP if there are any before they can exercise it.
The exercise date is the first-day employees can exercise their share option. This means they can now purchase shares in the company. The shares will be purchased at the exercise price. Once they have exercised the option, they typically cannot withdraw it. Withdrawal will be subject to certain conditions, for example, if the contract is terminated.
Classified as Securities
In Malaysia, ESOPs are considered “securities” per the Capital Markets and Services Act 2007 (“CMSA”) Securities Law.