What is Management Share Option Plan (MSOP)?

When a company is doing very good, its board may decide to reward the management so that their good work (i.e. Increasing valuation of the business) is encouraged. This may be in the form of awarding more shares from existing shareholders to management team members. This at first may seem that detrimental to shareholders as it reduces shares allocated to them. However, this is usually done when management can increase valuation of company to a higher number by securing external investment or funding.

Although in mathematical terms the % ownership of each common individual shareholders reduces, the absolute amount of their investment increases. For example, this may mean share going down from 10% to 8%. However if original valuation of company was $100,000 and new valuation is $200,000 then corresponding shareholder’s wealth is actually increased from $10,000 to $16,000.

Of course management can reward them in alternate ways like paying them more dividend. However, MSOP is sometimes used as a tool to recover some ownership of business for other shareholders by major shareholders like management team. For young companies releasing cash via dividends is always good choice. So depending on company and situation and shareholders consent MSOP is exercised.


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