Hi Elizabeth. You made some very interesting points related to stock options. Em
ID: 2329613 • Letter: H
Question
Hi Elizabeth. You made some very interesting points related to stock options. Employees have a variety of ways that they might acquire stock in a company. It’s common to have company stock in 401k plans or in ESPP (employee stock purchase plans). Employees might even purchase a company’s stock on their own as an individual. However, one of the more common ways for employees to own company stock is through stock option plans (aka ESOPs). While many companies offer these benefits to varying levels of employees, it’s often upper level management that receives the majority of the options. The idea here is to align management’s personal financial goals with the financial goals of the organization. Class, how might the risks and rewards associated with each approach compare?
Explanation / Answer
401k plans are the Qualified Rtirement Plans Sponsored by the Employer to individuals who works in the company. While there is some useful things for the employee is happening along with this plan.
First of all it is a saving for the future when the individual is retired and unable to work anymore. A Qualified Retirement Plan will be depenent resource then.
There is another Benefit that this Contribution made to 401k plan is Tax exempted from Federal Tax calculation. The Contribution made is in Pretax Basis will generate Tax Saings.
The Risk with this is Only employer can make contribution to such qualified Retirement Plan sponsored by employer.
ESOP
Employee share option scheme is established on the Idea to align management financial goals along with compnay goals.
This will reduce conflict between shareholders and Board Members as management will also work for increasing value of the company.
Employees ll get right for Dividend and will be a source of income.
There are some risk associated withESOP upper level management may use internal confidential information for making personal gain with Shares they held as by ESOP scheme.