Why ESOPs remain pandemic-resilient

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Key Takeaways

The COVID 19 pandemic has impacted global economies and markets. According to the World Bank, the pandemic caused a worldwide recession and deflated growth by almost 8%, costing trillions of dollars. Interestingly, ESOPs continue to be resilient and gain capital market interest. While major revenue-generating channels and financial institutions got hit by the pandemic, ESOPs or Employee Stock Option Plans have weathered the global storm— like a sturdy ship in a tumultuous ocean.

ESOP is allowing employees to have ownership of the company. With ESOP, employees will feel valued and create an alignment of interests between the employee and the company. They will push themselves to bring in more revenue for the company. If the firm does well, the stock value rises, increasing the value of their stock options. That's a win-win situation for both the company and employees.

But why does ESOP continue to be bullish?

Here are the main reasons it continues to be strong and why you should invest in one.

ESOPs have inherent advantages

ESOPs in the Philippines typically get offered to employees at low prices. In cases when companies start trading publicly, employees may get it as low strike prices or at current fair market values. Companies can also give stock options plans to employees without any payment and these are not subject to compensation taxes or Capital Gains Tax (CGT). These usually get charged to the employees. ESOPs only get taxed if the company offers them for a price.  If you want to learn more about ESOP Taxation in Southeast Asia, we have a great guide here.

According to Deloitte, this particular benefit and the cohesive alignment between employees and companies has allowed it to weather the impact of the market collapse and steep drops of other capital market solutions.  

ESOP builds trust and confidence within the company

In a recent study, ESOP companies' employment decline was far lower than companies that weren't. According to a Rutgers University and the Employee Ownership Foundation report, employee and employer relationships in ESOP companies are strong because of the mutual security and protection they provide. They also outperform other companies that didn't have one in place. The study said that ESOP companies' employment decline didn't suffer as much as non-ESOPs. Last year, many companies cut employee hours to save their businesses and employees. It found that firms with solid ESOPs didn't have to reduce work hours and cut employee pay.

Tapping ESOPs is an excellent way to diversify employee wealth

Employees can utilize their ESOPs to generate more income and increase their wealth. In the Philippines, companies have been offering ESOPs to retain their senior and valued employees. We know of one Philippine online gaming company that offered stock options and shares to their senior employees.

Another example is an Australian-based company that offered ESOP to long-time Filipino employees to make them stay with the company. Tenured employees and most of the managers were thrilled about getting shares in the company.  When the company went public, the ESOP holders could sell their shares thrice or quadruple the initial stock listing price. Their ESOPs gave several of them enough money to start their own companies or enough capital to create their own small business.

So, if you're interested in setting up ESOP for your company, contact us today or schedule a demo. Empower ownership for your employees! Speak with us.