ESOPs means, equity stok option plans. This is one of the component which creates an exorbitant CTC value for the HR team of a company to market, saying company is giving 2-3 crores worth of package. ESOPs other than being used by the HR guys, actually doles out ownership to its employees and gives them a sense of belonging with a stake. This will obviously, lead to improvement in their productivity because now they work for themselves rather than others, even though with the minuscule amount of shares they are far from ownership but simpletons will still work harder than ever before to get it.
Now, if you dole it out easy the value will be lost and ofcourse you need to get the juice out of your employee before handing them with anything. So after granting the ESOPs at the grant date, they are entrusted with their fair share of slavery stipulation called vesting conditions. Usually, the conditions are based on either service or performance or both. Service conditions means those conditions which needs the employee to stick around for a period in future to get the ESOPs. Along with service conditions there maybe some performance conditions, that means you need to achieve something before getting any of the ESOPs. The performance conditions maybe market linked which is actually beyond the control of the employee or non market linked which is actually under the control of the enemy.
The ESOPs will vest after fulfilling all the stipulated aforementioned kinds of vesting conditions. From the grant date till the vesting date it is called vesting period. After vesting, the employees can finally exercise the ESOPs. After the vesting date till the exercise date, called exercise period, the employees can finally cash their enslaved time.