The Disadvantages Of Retaining Employees Essay examples

1095 Words Aug 10th, 2015 5 Pages
The disadvantages of ESOPs in retaining employees

While the above shows there are plenty of benefits to ESOPs, it is important you also understand the disadvantages of running the scheme. When it comes to retaining employees at the company, some of the below points might act as a deterrence for the employee:

Difficulties getting access to full amount

First, it is crucial to note that obtaining access to the full amount can sometimes be a slow process for the employee. This can be a big hindrance to employees, although it is mainly a problem in the case of the employee retiring.

The difficulties arise in the company having to repurchase the ESOP shares from the retiring employee. If the company doesn’t have the funds available to do this, they might offer a deal such a payment plan or even for the employee to continue to hold on to the shares. These might been more risks for the employee and the financial benefit won’t be realised as quick as the employee might have hoped.

The employee stands to lose if business gets into trouble

All investors know that you should never put your eggs in one basket and an ESOP scheme unfortunately can do this. Many employees have nearly all of their retirement plans resting on the ESOP scheme and this poses a huge financial challenge.

If the company fails and falters, the employee won’t have any protection for the losses they might concur. Although the employee has not had to pay anything for the shares, they might still be relying on…

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