ESOP/VSOP

Employee Stock Ownership Plan (ESOP) is the term used to describe employee stock ownership programs that grant the beneficiary the option to acquire actual shares in a company. By granting contractually defined options, beneficiaries receive an entitlement to a future share in the company in the form of business shares.

Virtual Stock Option Plans (VSOP), on the other hand, are employee stock option plans under which employees receive a cash claim resembling the mechanics of an actual share. The amount of this payment is generally based on the proceeds that the employees would have received if they had exercised real options instead of virtual options and sold the shares by way of an exit. However, formulas for the calculation of an employee quite often prove difficult covering a wide range of possible exit transaction scenarios.

Both real and virtual participation are generally subject to additional conditions, such as a certain period of time during which the employees must remain with the company (cliff period) until the gradual acquisition of shares begins (vesting period). The aim of both participation models is to retain key employees in the company for the long term and to promote their productivity by giving them a vested interest in the performance of the company. It also makes working for a startup, which is often unable to pay competitive salaries, more attractive.