Equity compensation plan or a stock option is the opportunity, given by the employer, to own a certain number of shares of the company's common stock at a pre-established price, known as the grant price, over a specific period of time, known as the vesting period.
Equity as an asset is a time tested tool that provides one of the best opportunities for wealth creations
Equity as a mode of compensation is cost effective for employer
In the sprit of a true partnership the value created is shared
Attraction and retention of talent for positions of substantial responsibility
Creates commonality of interest between employees and shareholders
Provides great incentive and motivation to employees
Offers most tax efficient compensation for employees
Covers companies which are
Listed in a recognized stock exchange in India – Recognized by SEBI
Listed in a recognized stock exchange outside India – Recognized by similar regulatory authority
Unlisted domestic company.
Subsidiary or holding company of a company referred above.
Permanent employee of the company. (Inferred to include parent / subsidiary)
Non-whole time directors.
Persons not to be covered
Employee who is a promoter or belongs to the promoter group.
A director (directly or indirectly) holds more than 10% of the outstanding equity shares of the company.
Grant of rights to purchase company shares at future date
Employees have an option but no obligation
Price is predetermined
Price can be fair value (FV) based or at discount to FV
Vesting period can be flexible – minimum statutory period of 12 months
Appropriate for small companies where future growth is expected.
For publicly owned companies who want to offer some degree of company ownership to employees.
How much stock a company be willing to sell?
Who will receive the options?
How many options are available to be sold in the future?
Is this a permanent part of the benefit plan or just an incentive?
Right to purchase shares. Price is predetermined. Not shareholders,no votes Vesting ceases when employee leaves.
There are three types of stock options
Incentive stock options ("ISOs")
Non-qualified stock options ("NQSOs")
Restricted Stock Options Plans.
Based on exercise price.
There is no tax to the option holder.
May be subject to alternative minimum tax.
Based on Fair Value.
There is tax to be paid.
Tax is paid on the difference of price.
Stocks held by founders.
If founder leaves, these stocks are forfeited.
It acts as motivation for founders.
Voting and other rights of stockholders.
Subject to a repurchase right by the company.
Allows a company to share ownership with the employees.
Used to align the interests of the employees with those of the company.
In a down market,they quickly become valueless
Dilution of ownership
Excellent way to reward key executives.
A tax saving compensation plan
Helps in attracting & retaining talented employees
Sense of ownership is created
Great tool for motivation of employees
At a Glance…..
1981: Infosys is established by N. R. Narayana Murthy and six engineers in Pune, India, with an initial capital of US$ 250. Signs up its first client, Data Basics Corporation, in New York
1983: Moved its headquarters to Bangalore, the capital of Karnataka
1987: Opens first international office in Boston, US
1992: Opened its first overseas sales office in Boston.
1993: Became a public limited company in India with an initial public offering of Rs. 13 crores .
1999: First Indian company to be listed on Nasdaq on March 11.
2002: Business World named Infosys "India's Most Respected Company".
2002: Started its BPO (business process outsourcing) subsidiary
2003: Acquired 100% equity of Expert Information Services Pvt Limited, Australia (Expert) and changed the name to Infosys Australia Pvt Limited.
2006: August 20, N. R. Narayana Murthy retired from his position as the executive chairman.
2006: Acquired the 23% stake Citibank had in its BPO making it a wholly owned subsidiary of Infosys and changed the name to Infosys BPO Ltd.
2006: December, became the first Indian company to make it to Nasdaq-100
2007: April 13, Nandan Nilekani stepped down as CEO and made way for K. Gopalakrishnan to occupy his chair effective June 2007
2007: July 25, Infosys bags multi-million dollar outsourcing contract with Royal Philips Electronics in the area Finance & Accounting services strengthening its European operations.
2008: Agreed to buy British consultancy Axon Group for 407 million pounds ($753 million), but HCL Technologies outbid Infosys for 441 million pounds. However, Infosys gained Rs. 180 million from the failed Axon bid.
Infosys Stock Option Plans
Infosys has so far floated three stock offer plans -the 1994, 1998 and 1999 plan
The first and biggest employees' stock option plan
Objective- generate cash for the employees.
It had a lock in Period of Five Years.
Date of Expiry: 23 August 2001
No of Equity Shares: 1,22,200
No of Employees: 1,525
Total value of shares after lock in period: 477 millions.
In !998 Plan the duration was for 10 years.
Stock Option was issued at 90 percent of the fair market value.
Eligible employees: 801
66,00,000 equity shares was issued to the employees.
No of Eligible employees: 9,736
Each Infosys employee worth Rs 97 lakh!
Each employee at Infosys Technologies is worth as much as Rs 97 lakh, mainly based on the potential value of his/her future earnings.
The IT major's total value of human resources, which includes both software professionals and support staff, is pegged at Rs 1,02,133 crore for the fiscal ended March 2009.
According to the company's annual report, the human resources' value of Rs 1,02,133 crore during fiscal 2009 was for 1,04,850 employees during the same period.