Understanding Employee Stock Grants (ESG) vs. Employee Stock Options (ESO)

Many clients have been asking CBO, so we wanted to share some insights here.
While they might seem similar, they have distinct differences that can impact both the employee & the company.
(A) Employee Stock Grants (ESG):
Definition: ESGs are shares given to employees as part of their compensation package. These shares are typically subject to vesting periods, which means employees earn the right to own the shares over time.
Ownership: Employees receive actual shares & become shareholders of the company.
Vesting Period: There is often a vesting schedule, meaning employees earn the shares over a specific period or based on certain milestones.
Cost: Generally, employees do not pay for these shares, although they may need to meet certain performance criteria.
Market Value: The value of the shares is determined by the current market price when the shares are granted.
(B) Employee Stock Options (ESO):
Definition: ESOs give employees the right to purchase company shares at a predetermined price (exercise price) after a certain period or upon meeting specific conditions.
Ownership: Employees do not own the shares until they exercise the options.
Vesting Period: Similar to ESGs, there is typically a vesting schedule that must be met before the options can be exercised.
Cost: Employees must pay the exercise price to purchase the shares.
Market Value: The potential profit from ESOs depends on the difference between the exercise price and the market price of the shares at the time of exercise.
Key Differences:
1. Ownership Timing: ESGs provide immediate ownership of shares (subject to vesting), while ESOs provide the right to purchase shares in the future.
2. Cost to Employee: ESGs usually do not require the employee to pay for the shares, whereas ESOs require payment of the exercise price.
3. Value Fluctuation: The value of ESGs is fixed at the grant date and depends on the stock price at that time. The value of ESOs can increase if the company’s stock price rises above the exercise price.
Using ESG & ESO to Retain Capable Employees:
1. Motivation and Loyalty: Offering ESGs and ESOs can significantly increase employee motivation and loyalty. Employees who own a stake in the company are more likely to be committed to the company’s success.
2. Long-Term Commitment: Vesting schedules encourage employees to stay with the company for a longer period to realize the full benefits of their equity compensation.
3. Attract Top Talent: Competitive equity compensation packages can attract highly skilled professionals who are looking for long-term growth opportunities.
4. Alignment of Interests: ESGs & ESOs align the interests of employees with those of shareholders, promoting a culture of ownership & accountability within the company.
If you need help, feel free to contact us at :
(M) +65 90880669
Written by Kelvin Loh