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Startup ecosystem · ESOP

RSU vs ESOP vs SAR: what structure works for which employee

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  1. Facts

    ESOP (Employee Stock Option): Right to buy shares at a fixed price. Employee must pay exercise price. Upside = FMV growth. Most common in India.

  2. Provisions and law

    • Companies Act 2013 | SEBI SBEB Regs | IT Act Sec 16 to 18 (old 17)

  3. Analysis

    RSU (Restricted Stock Unit): Promise to deliver shares (or cash equivalent) on vesting. No exercise price, employee gets shares free on vesting. The entire FMV on vesting date = perquisite. Better for mid-senior hires who need less risk. Common in MNCs and large Indian tech companies. SAR (Stock Appreciation Right): Employee gets the cash value of price appreciation, no shares issued. Good for employees who don't want share ownership but want upside. No dilution for company. Taxed as salary on exercise.

  4. Conclusion

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