ESOP stands for Employee Stock Ownership Plan. Instead of offering only salary, startups often reward employees with the opportunity to own a part of the company through stock options.
What is an ESOP?
An ESOP gives you the right to buy company shares at a fixed price, known as the exercise price or strike price. If the company becomes more valuable over time, those options may become valuable too.
Options do not always become yours immediately. They usually vest over time, meaning you earn the right to exercise them as you continue working at the company.
Why do startups offer ESOPs?
- To attract talented people when cash budgets are limited.
- To reward employees for helping build long-term value.
- To encourage retention through vesting schedules.
- To align employee incentives with company growth.
Key takeaway
ESOPs are not guaranteed cash. They are a potential ownership opportunity whose value depends on the company's future.