Employee Stock Option Plan (ESOP) is a method through which a company awards Stock Option to its employees based on their performance.

ESOP is a contract that gives employees the right, but not obligation, to purchase or subscribe to a specified number of shares of the company at a fixed price, that is, the exercise price. The exercise price remains fixed even if the market price goes up in future. the price is determined by a Registered Valuer.

There are 2 methods of doing ESOP Valuation:


Intrinsic value is the excess of the market price of the share under ESOP over the exercise price of the option (including upfront payment, if any)


It takes into account factors like Time Value, Interest Rate, Volatility, Dividend Yield etc. for the estimation of Employee Compensation cost.

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