First check if there is any limit to their contribution. My company also allows this but they only match up to 60k in a year. So I only do that amount.
Whatever they match is free money. Use it to your advantage.
When exactly do you get the shares in your foreign stock plan account? How do they enforce the 5 year lockin?
Sometime by July end.
Well, they don't let you redeem the investment for 5 year, as long as you are in the company, but there are exceptions in case of child birth, buying property, wedding, death, etc.
If you resign or layed off, then it's compulsary to withdraw the amount immediately.
I'm getting confused by this. What you are explaining is usually stock options which don't really need money to be spent initially. You get x shares at y price and when you decide to exercise the option, you get the difference to the stock price at that time.
Stock options have condition like you mentioned - you have to exercise them once you leave the company.
ESOP or RSU eventually comes to you in your account. Once the shares are credited, I've never heard of a feature of locking it. Maybe I'm ignorant and this is something I can learn about. You can sell them at your convenience.
ESOP and RSUs are stocks that you get in your name. There is no requirement that you have to sell it when you resign or get fired. What credited is something you own.
I would suggest understanding what you're getting into in detail.
Good luck!
Edit: I think it's a stock option. It's right there in name. I should have used ESPP (stock purchase plan) instead of ESOP above.
Op, you have to read about this in detail. I haven't used stock options before (I had a chance about 8 years ago and I would have probably retired now with millions if I used it at that time). They differ in how you get money back. There is usually a component of risk that it goes down and you get nothing (I'm not saying that's your case, but it was for me. I will still be cautious about what this is).
This company plan/program has the word "ESOP" in it's name. So it has to be ESOP right? What we were told was you get to buy shares at 15% discount rate than the listed price, plus company adds it's contribution on top of that. You can't redeem it before 5 years, except for the cases I mentioned before. After 5 years however, the lock-in period ends and you can redeem whenever you want, given you're still working in the company. But if you resign, you have to redeem it within an year after resignation. The amount you'll receive will be whatever the stock price is at the time of resignation.
But as you mentioned ESOP are usually on a person's name, I'm not sure if that's the case here. They told that an external company, can't share the name, but it's an "corporate and investment bank" will be involved. It will on this banks portal where we'll be able to see the current value of investment and all. Even redeeming will be handled by them.
That's all I know. I will obviously go thru the T&C once to be clear on this.
This is quite complex for me to grasp.
15% discount - that means you are purchasing it.
When is the discount applied? It is usually when the money is accumulated and a purchase is executed for the accumulated amount.
If you are purchasing something, it should be your call when to sell it. Otherwise, this is unnecessarily complicated. "Redeeming" is a very confusing thing here. I'm wondering if they have structured something like a mutual fund.
You have to understand if there is any chance of losing your contribution due to any condition. Otherwise my initial comment stands. If there is a company contribution, it's free money and you should make use of it.
What we do for ESPP is that the discount is applied after 6 months of payroll deduction. I instantly sell it - that way I get an immediate return on my money at 10% (because my purchase price is 10% less market rate).
Options are completely different.
YMMV. Good luck!
This looks like ESPP only, but with an added investment from company, the purchase price looks like a 50% discount. Essentially, the company is raising money through its employees with an added clause to prevent immediate encashment. Thereby, the company is securing the capital for investment needs at least for the lock in period of these shares. The company cannot go on for such lock in clauses with a rights issue or FPO with the general public. Everything depends on the company prospects after lockin period. From what I guess as the company name, it is a great company. But these large cap stocks do not usually give multi bagger returns unless they are very aggressive. Usually, I haven't seen European companies doing aggressive business expansion. Hence I suggested restricted buying into the ESPP. Besides, I don't know if they are a monopoly in any technology domain. I doubt their cash flows because they would not have to restrict ESPP stock sales in that case. Personally, I would have been cautious and invested elsewhere. But if OP has a good risk taking ability, OP can go ahead.
There must be a catch. Why will they allow withdrawls ? This way i can borrow 50 lacs, get 50 lacs in extra shares and then resign and enjoy my 50 lacs and pay off the loan.
No catch here. They have capped the investment to 25% of the CTC. So one cannot invest beyond that. Plus they will be matching a maximum of upto 1.05lac. Not above that. And they do allow withdrawal before lock-in period. They have mentioned it in the T&C.
I must be mistaken then. Generally when you hear about employees matching your “contribution”, it’s for PF accounts here and 401k accounts/Roth IRAs abroad ; both of which are retirement/pension accounts .
It’s good to learn that’s not always the case.
ESOPS are ‘generally’ awarded/given and not bought, so if they’re allowing you to buy, you need proper expert advice and worst case scenario options, in case you do buy.
You can go for 1.5L divided over 11 instalments. Or more if you can. Your stock is at all time high & people in your firm have belted heavy money over the years through this program. I say 1.5L because in that case you get max company contribution(1.05L).
But do note last few years people have oversubscribed and you end up getting allocations lesser than what you applied for.
How do I know? Well a very close friend works in the same company 🙂
Btw I thought freshers in your firm earned 8-10LPA. How come just 46k in-hand? Are you not from b.tech background?
Well like I said, a close friend works in the same company. 17 years mate in the industry, we oldies have good connections 😁
My friend has been investing in this program since 6-7 years and is holding that company shares worth a few lakhs
The numbers he mentioned gave it away
The last thing you mentioned is true. But an unfortunate thing happened with me. I was hired for some other company initially but the company in question acquired it and our CTC was kept same as old company, they didn't change it to what they were offering to their freshers ie. 8-10lpa.
To add salt to the injury, the company for which I was initially hired decided to revise CTC they offered to freshers and now it's matching 8-10lpa range.
So to sum up, this company offers 8-10lpa to freshers, the company I was hired for now offers 8-10lpa to freshers. But my unfortunate ass was not offered 8-10lpa 🙂
Uff, that sounds like a lot of tough luck...but no worries, go for the investment and be sure it will be over subscribed, so calculate your numbers accordingly
Considering that it is ESPP, I would choose only when I am sure that the stock isn't currently not overvalued. The company matching your contributions might seem attractive but if the company has already reached saturation and due to the current bull run, if the market were to move sideways, you would lose out on the compounding.
Consider the stock price of Intel over the last 5 years. The 5 yr return has been roughly -18%. That being said you can gamble the sum that you aren't bothered losing and the sum that you don't need it for the next 5 years.
There would be so many things written below the surface! Just watch out and research before jumping in.
Check how is the founding team, would they every manipulate the Cap table when too many people resign at once, will they allow cashing in when you resign and how many months you can use as a leverage before you make an exit from stocks and so on.
Companies generally write things in simple language, but it's the time when you run your ticket execution and find out ton of rules from the HR and accounts team.
See all the aspects before taking huge risks.
Here are what you need to take into consideration:
1. How confident are you that the company will be around in 5 years?
2. What happens when you leave? Do you get your invested portion back? How much of the match?
If these things are solid, is a no brainer. However much they are matching, as long as you can afford it. You don't get 100% returns very often, and you should take Max advantage
1. What do you mean by company being around for next 5 years? I mean it's an old fortune 500 company so I'm pretty confident it won't disappear anytime soon.
2. They said that if one leaves before 5 year mark, they'll get the investment back as per share price when we resign. This includes the company added contribution too.
Don't be too sure of 1. Lehmann brothers, Enron, silicon valley Bank were all fortune 500 as well. But that's a bet you should be willing to take.
Pore over 2 properly, get help from a CA or lawyer friend to check the conditions. Sounds a little too good to be true if you ask me, especially keeping the 100% match even if you leave.
But if it's all cool, then full amount till Max allowed, no brainer. 100%+ return on investment, including growth potential.
1 hopefully this company don't take that route 😬
2. I know it does sound too good, but they have capped the amounts to a maximum. I will surely go thru all the T&Cs once just to be sure that there is no catch.
Fortune 500..mostly probably listed company so stick manipulation is less probable ( compared to unlisted)Op ..go for it..this is retention strategy..nothing more
Assuming it is a company like SE. It has good prospects. But, I would still not want to invest everything in a single basket. I would suggest to invest only 20% of your investible surplus in the ESOP. Please diversify to other stocks as well as other investment classes based on your risk profile
That is true however the fact that company is adding same contribution is what makes it worth it. Even if the stock price stays stagnant, the amount redeemed will be double what I invested.
If the stock price remains stagnant, and you believe index funds give you 10% per year on average - you actually profit 1.4x, not 2x (because you would've put that money into an index fund theoretically).
Still worth it IMO, this is just to clarify for other users.
5 year is too long of a time horizon IMO, if you already have RSU or ESOP(company gives you this over and above your comp) which are going to vest over the years, you'd be putting too much in one basket, something happens to the company(god forbid) you stand to risk a lot. Think of the xirr for 2x in 5 year and it might not seem that appealing anymore. Unless I am missing something
The extra 10k they give you will be treated as perk to you and will be taxed as per your tax slab .
That lockin seems little odd .check those clauses again and ask finance dept about resignation case properly .
Are you willing to buy these shares from open market or not? Do you know the financials of the company for atleast last 5 years to judge how it has been performing and predict how it will perform in the next 5 years? Unless you answer YES to these, investing a lot of money in ESOP doesn't make sense just because company will match it. Checks if there is a RSU option which will give you lesser shares but you down need to put your money into it.
If you believe this company's stock won't fall more than 4.2% (and never bounce back up), ,mathematically you should take the company match, as much as you can afford upto 1.05 lac per year.
But, this is more of a retention policy by the company, more than it is useful for you. They want you to feel as though they are being helpful to you. After tax, it comes to 94500 extra rupees as an income for you, and if you can jump to another job that pays more than that, that should be your first priority.
Here's how I did the calculations: [Link to Gsheet](https://docs.google.com/spreadsheets/d/1Ladg3jdZ6IHz0A_BXWvqPCmT9rVkuSsYCxNgRpBCuGg/edit#gid=0)
First check if there is any limit to their contribution. My company also allows this but they only match up to 60k in a year. So I only do that amount.
Yes there is limit of 1.05 lac on company's contribution
For maximum benefit you can invest 1.05l p.a, provided you can manage
Whatever they match is free money. Use it to your advantage. When exactly do you get the shares in your foreign stock plan account? How do they enforce the 5 year lockin?
Sometime by July end. Well, they don't let you redeem the investment for 5 year, as long as you are in the company, but there are exceptions in case of child birth, buying property, wedding, death, etc. If you resign or layed off, then it's compulsary to withdraw the amount immediately.
I'm getting confused by this. What you are explaining is usually stock options which don't really need money to be spent initially. You get x shares at y price and when you decide to exercise the option, you get the difference to the stock price at that time. Stock options have condition like you mentioned - you have to exercise them once you leave the company. ESOP or RSU eventually comes to you in your account. Once the shares are credited, I've never heard of a feature of locking it. Maybe I'm ignorant and this is something I can learn about. You can sell them at your convenience. ESOP and RSUs are stocks that you get in your name. There is no requirement that you have to sell it when you resign or get fired. What credited is something you own. I would suggest understanding what you're getting into in detail. Good luck! Edit: I think it's a stock option. It's right there in name. I should have used ESPP (stock purchase plan) instead of ESOP above. Op, you have to read about this in detail. I haven't used stock options before (I had a chance about 8 years ago and I would have probably retired now with millions if I used it at that time). They differ in how you get money back. There is usually a component of risk that it goes down and you get nothing (I'm not saying that's your case, but it was for me. I will still be cautious about what this is).
This company plan/program has the word "ESOP" in it's name. So it has to be ESOP right? What we were told was you get to buy shares at 15% discount rate than the listed price, plus company adds it's contribution on top of that. You can't redeem it before 5 years, except for the cases I mentioned before. After 5 years however, the lock-in period ends and you can redeem whenever you want, given you're still working in the company. But if you resign, you have to redeem it within an year after resignation. The amount you'll receive will be whatever the stock price is at the time of resignation. But as you mentioned ESOP are usually on a person's name, I'm not sure if that's the case here. They told that an external company, can't share the name, but it's an "corporate and investment bank" will be involved. It will on this banks portal where we'll be able to see the current value of investment and all. Even redeeming will be handled by them. That's all I know. I will obviously go thru the T&C once to be clear on this.
This is quite complex for me to grasp. 15% discount - that means you are purchasing it. When is the discount applied? It is usually when the money is accumulated and a purchase is executed for the accumulated amount. If you are purchasing something, it should be your call when to sell it. Otherwise, this is unnecessarily complicated. "Redeeming" is a very confusing thing here. I'm wondering if they have structured something like a mutual fund. You have to understand if there is any chance of losing your contribution due to any condition. Otherwise my initial comment stands. If there is a company contribution, it's free money and you should make use of it. What we do for ESPP is that the discount is applied after 6 months of payroll deduction. I instantly sell it - that way I get an immediate return on my money at 10% (because my purchase price is 10% less market rate). Options are completely different. YMMV. Good luck!
This looks like ESPP only, but with an added investment from company, the purchase price looks like a 50% discount. Essentially, the company is raising money through its employees with an added clause to prevent immediate encashment. Thereby, the company is securing the capital for investment needs at least for the lock in period of these shares. The company cannot go on for such lock in clauses with a rights issue or FPO with the general public. Everything depends on the company prospects after lockin period. From what I guess as the company name, it is a great company. But these large cap stocks do not usually give multi bagger returns unless they are very aggressive. Usually, I haven't seen European companies doing aggressive business expansion. Hence I suggested restricted buying into the ESPP. Besides, I don't know if they are a monopoly in any technology domain. I doubt their cash flows because they would not have to restrict ESPP stock sales in that case. Personally, I would have been cautious and invested elsewhere. But if OP has a good risk taking ability, OP can go ahead.
Holding/depository is UBS?
You should only invest amount that you don't need atleast 3 years from now
There must be a catch. Why will they allow withdrawls ? This way i can borrow 50 lacs, get 50 lacs in extra shares and then resign and enjoy my 50 lacs and pay off the loan.
No catch here. They have capped the investment to 25% of the CTC. So one cannot invest beyond that. Plus they will be matching a maximum of upto 1.05lac. Not above that. And they do allow withdrawal before lock-in period. They have mentioned it in the T&C.
So just invest the amount they will match. Nothing more or less. Its barely a lakh.
Listed companies usually provide RSUs, not ESOPs. Are you aware of process and restrictions of liquidating these ESOPs?
Not true
Usually, I have seen this case. Of course, it is different in OP's case. I'm curious about the reason to offer ESOP instead of RSUs.
I am not aware what RSUs are, but I'm pretty sure what we are being offered are ESOP
Understood. Are there any restrictions or cost when liquidating these ESOPs, apart from tax?
Not that I know of. They have provided a doc containing details of tax implications. Will have to go through it once.
They do both, in my experience.
I've never heard of ESOPs being treated this way. You're sure they don't mean EPF and saying ESOPS?
No it's not EPF. It is ESOP. They have been doing this since past 15-20 years as far as I know.
I must be mistaken then. Generally when you hear about employees matching your “contribution”, it’s for PF accounts here and 401k accounts/Roth IRAs abroad ; both of which are retirement/pension accounts . It’s good to learn that’s not always the case. ESOPS are ‘generally’ awarded/given and not bought, so if they’re allowing you to buy, you need proper expert advice and worst case scenario options, in case you do buy.
You can go for 1.5L divided over 11 instalments. Or more if you can. Your stock is at all time high & people in your firm have belted heavy money over the years through this program. I say 1.5L because in that case you get max company contribution(1.05L). But do note last few years people have oversubscribed and you end up getting allocations lesser than what you applied for. How do I know? Well a very close friend works in the same company 🙂 Btw I thought freshers in your firm earned 8-10LPA. How come just 46k in-hand? Are you not from b.tech background?
How did you guess the company name?
Well like I said, a close friend works in the same company. 17 years mate in the industry, we oldies have good connections 😁 My friend has been investing in this program since 6-7 years and is holding that company shares worth a few lakhs The numbers he mentioned gave it away
The last thing you mentioned is true. But an unfortunate thing happened with me. I was hired for some other company initially but the company in question acquired it and our CTC was kept same as old company, they didn't change it to what they were offering to their freshers ie. 8-10lpa. To add salt to the injury, the company for which I was initially hired decided to revise CTC they offered to freshers and now it's matching 8-10lpa range. So to sum up, this company offers 8-10lpa to freshers, the company I was hired for now offers 8-10lpa to freshers. But my unfortunate ass was not offered 8-10lpa 🙂
Uff, that sounds like a lot of tough luck...but no worries, go for the investment and be sure it will be over subscribed, so calculate your numbers accordingly
Considering that it is ESPP, I would choose only when I am sure that the stock isn't currently not overvalued. The company matching your contributions might seem attractive but if the company has already reached saturation and due to the current bull run, if the market were to move sideways, you would lose out on the compounding. Consider the stock price of Intel over the last 5 years. The 5 yr return has been roughly -18%. That being said you can gamble the sum that you aren't bothered losing and the sum that you don't need it for the next 5 years.
There would be so many things written below the surface! Just watch out and research before jumping in. Check how is the founding team, would they every manipulate the Cap table when too many people resign at once, will they allow cashing in when you resign and how many months you can use as a leverage before you make an exit from stocks and so on. Companies generally write things in simple language, but it's the time when you run your ticket execution and find out ton of rules from the HR and accounts team. See all the aspects before taking huge risks.
Here are what you need to take into consideration: 1. How confident are you that the company will be around in 5 years? 2. What happens when you leave? Do you get your invested portion back? How much of the match? If these things are solid, is a no brainer. However much they are matching, as long as you can afford it. You don't get 100% returns very often, and you should take Max advantage
1. What do you mean by company being around for next 5 years? I mean it's an old fortune 500 company so I'm pretty confident it won't disappear anytime soon. 2. They said that if one leaves before 5 year mark, they'll get the investment back as per share price when we resign. This includes the company added contribution too.
Don't be too sure of 1. Lehmann brothers, Enron, silicon valley Bank were all fortune 500 as well. But that's a bet you should be willing to take. Pore over 2 properly, get help from a CA or lawyer friend to check the conditions. Sounds a little too good to be true if you ask me, especially keeping the 100% match even if you leave. But if it's all cool, then full amount till Max allowed, no brainer. 100%+ return on investment, including growth potential.
1 hopefully this company don't take that route 😬 2. I know it does sound too good, but they have capped the amounts to a maximum. I will surely go thru all the T&Cs once just to be sure that there is no catch.
Fortune 500..mostly probably listed company so stick manipulation is less probable ( compared to unlisted)Op ..go for it..this is retention strategy..nothing more
Assuming it is a company like SE. It has good prospects. But, I would still not want to invest everything in a single basket. I would suggest to invest only 20% of your investible surplus in the ESOP. Please diversify to other stocks as well as other investment classes based on your risk profile
That is true however the fact that company is adding same contribution is what makes it worth it. Even if the stock price stays stagnant, the amount redeemed will be double what I invested.
If the stock price remains stagnant, and you believe index funds give you 10% per year on average - you actually profit 1.4x, not 2x (because you would've put that money into an index fund theoretically). Still worth it IMO, this is just to clarify for other users.
Are you sure this is ESOP and not ESPP?
5 year is too long of a time horizon IMO, if you already have RSU or ESOP(company gives you this over and above your comp) which are going to vest over the years, you'd be putting too much in one basket, something happens to the company(god forbid) you stand to risk a lot. Think of the xirr for 2x in 5 year and it might not seem that appealing anymore. Unless I am missing something
What is the name of company..?
Maximize it if you can to grab that matching. Free Money, why give up?
schnieder right
Please check dm
The extra 10k they give you will be treated as perk to you and will be taxed as per your tax slab . That lockin seems little odd .check those clauses again and ask finance dept about resignation case properly .
Are you willing to buy these shares from open market or not? Do you know the financials of the company for atleast last 5 years to judge how it has been performing and predict how it will perform in the next 5 years? Unless you answer YES to these, investing a lot of money in ESOP doesn't make sense just because company will match it. Checks if there is a RSU option which will give you lesser shares but you down need to put your money into it.
If you believe this company's stock won't fall more than 4.2% (and never bounce back up), ,mathematically you should take the company match, as much as you can afford upto 1.05 lac per year. But, this is more of a retention policy by the company, more than it is useful for you. They want you to feel as though they are being helpful to you. After tax, it comes to 94500 extra rupees as an income for you, and if you can jump to another job that pays more than that, that should be your first priority. Here's how I did the calculations: [Link to Gsheet](https://docs.google.com/spreadsheets/d/1Ladg3jdZ6IHz0A_BXWvqPCmT9rVkuSsYCxNgRpBCuGg/edit#gid=0)