ESOP dilution

The reduction in each existing shareholder's stake as employee options are exercised and new shares are issued.

A company with 50 crore shares and 3 crore options outstanding will dilute existing holders by 6% if every option is exercised, and the earnings each share represents falls by the same proportion.

The disclosure sits in the notes: options outstanding, weighted average exercise price, and how many are exercisable now. Comparing the exercise price to the market price tells you how much of the pool is realistically live, since options far out of the money will probably expire.

A grant pattern that repeats every year is a running cost, not a one-off, and the right way to model it is as an annual percentage of the share count rather than as a single dilution event.

Ask what the count will be in five years, not what it is now.