RSU VS ESOP

Employers often grant different benefits to their employees throughout employment to keep them motivated and attract new talent. These benefits can sometimes come in the form of company shares as well. Such shares are granted either in the form of RSU or ESOP. As a salaried employee, it is crucial to understand these employment perks to make the most out of them.

ESOP

Employee Stock Option Plan or Employee Stock Ownership Plan (ESOP) is a company's way of rewarding its employees. It gives an employee the right to buy company shares on a future date at a predetermined price. 

Once an employer grants ESOP, they do not immediately transfer it to that employee. They instead transfer the shares to a trust, and it remains there for a certain time, known as the vesting period. At the expiry of the vesting period, also known as the vesting date, the employee can choose to exercise his/her right to buy the shares.

RSUs

Restricted Stock Units (RSUs) are another form of incentive an employer can grant to his employees. It is a promise by an employer granting employees a predetermined number of shares free of cost at the end of the vesting period, provided certain conditions are met.

Even though employers grant RSUs free of cost, it comes with certain restrictions.

• Time-based restrictions
• Milestone-based restrictions
• Composite restrictions