Employee Stock Option Scheme


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ESOP is an Employee benefit Plan which makes the employees of a company owners of stock in that Company.

ESOP is a plan to compensate, retain and attract employees.

ESOP is a contract between a Company and its employees that give employees the right to buy a specific number of the company's shares at a fixed price within a certain period of time.

Published in: Business, Economy & Finance

Employee Stock Option Scheme

  1. 1. An Online Venture of EMPLOYEE STOCK OPTION PLAN Mohini Varshneya 9971673332 / 011-40622231 mohini@indiacp.com info@eesoponline.in
  2. 2. ESOP Employee Stock Option Plans/Equity Incentive Plans (commonly referred to as ESOPs) are one of the most important tools to attract, encourage and retain Employees. Nowadays, these ESOPs are being increasingly used as a compensation tool by the Corporate Houses with the basic premise of creating wealth for the Employees, on one hand and motivating Employees to have long-term career aspirations in the Organization, on the other. Extending benefits through ESOPs is like creating a win-win situation for both Employer & Employee: Owners Employees
  3. 3. ABOUT US is a venture promoted by Corporate Professionals Group, which is best illustrated for providing widest spectrum of corporate services at one stop. We are recognized as a destination where all paths in hunt for corporate solutions end. Through our strong foundations and robust growth, we have emerged as leading corporate advisors attaining an edge in providing services at internationally competitive standards. Our diversified team of professionals who have attained expertise in delivering supreme corporate services utterly justifies our name, Corporate Professionals.
  4. 4. WHY ESOP??? To attract, reward, motivate and retain employees for high levels of individual performance and for unusual efforts. Promote employee ownership culture and reduce the attrition. To improve the financial performance of the Company, which will ultimately contribute to the success of the Company. Enhances job satisfaction of the Employee due to ownership incentive Companies grant an option to employees to acquire shares of their employer company over a period of time at a reduced price or nil price. ESOP proves to be a good retirement benefit plan for employee. Therefore ESOP is primarily a kind of incentive to hold the employees to the company's fold.
  5. 5. RESTRUCTURING MODES UNDER ESOPs Stock Options (Sharing in the Capital of the company) Employee Stock Option Scheme (ESOS) Employee Stock Purchase Plan (ESPP) Restricted Stock Units (RSUs) Stock Indexed Plans (No sharing in the Capital of the Company) Stock Appreciation Rights (SARs Phantom Stocks
  6. 6. ROUTES UNDER ESOP Direct Route Trust Route
  7. 7. Direct Route
  8. 8. Trust Route
  9. 9. WHO ARE NOT COVERED UNDER THE AMBIT OF TRUSTEES Directors Key Managerial Personnel Promoter of he Company Or any relative of such Director, Key Managerial Personnel or Promoter Beneficial owner holding 10% or more of the paid-up capital
  10. 10. ARENA OF EMPLOYEES UNDER COMPANIES ACT, 2013 Employees Covered Permanent Employees Whole Time Directors Other Directors Employees Not Covered Temporary Employees Independent Directors Directors holding 10% capital of the Company. Employees related to Promoter Group
  11. 11. REGULATORY REGIME The Indian Laws that govern the framework of ESOPs are: Companies Act, 2013 along with Rules; Companies Act, 1956; Income Tax Act, 1961 (including Rules and Circulars issued thereunder); Foreign Exchange Management Act, 1999 (including Rules and Regulations enacted there under);
  12. 12. ESOP PROCEDURE AS PER COMPANIES ACT, 2013 Step 1 • Hold a Board Meeting to consider ESOP. Step 2 • If required constitute Compensation Committee and Compensation Committee shall plan the scheme of ESOP. Step 3 • Hold General Meeting of the Shareholders for approval of the ESOP Scheme. Step 4 • On receipt of letter of acceptance of option along with upfront payment, from the Employee, issue the option certificates. Step 5 • After expiry of vesting period, the options shall vest in the employee. At that time, the Company shall issue a letter of vesting along with the letter of exercise of options. Step 6 • Receipt of letter of exercise from employee during the exercise period. Step 7 • Hold a Board Meeting at the suitable interval during the exercise period for allotment of shares on options exercised by the Employees. Step 8 • Dispatch of letter of allotment along with the share certificates.
  13. 13. The above mentioned ESOP Procedure is summarized as follows: Board Meeting General Meeting of shareholders for obtaining assent of shareholders in accordance with Section 62 of the Companies Act, 2013 Grant of options Exercise of option by an employee One time Graded Vesting period is the time period between the grant and exercise of option, which can be any time period as the Management decides, in the Scheme.
  14. 14. PROVISIONING OF MONEY BY COMPANY FOR EMPLOYEE WELFARE TRUSTS Companies Act, 2013 allows Companies to make provision of money involving purchase or subscription of its own shares or shares of holding company subject to the following: The scheme of provision of money to be separately passed by the Shareholders. Value of the Shares in the Trust shall not exceed 5% of the aggregate of paid up capital and free reserves of the company. Valuation of the shares purchased by the Trust is to be made by the Registered Valuer in case of Unlisted Companies.
  15. 15. VALUATION: AN IMPORTANT ASPECT IN STOCK OPTION PLANS In any Stock Option Plan, the Valuation aspect plays a very crucial role. The value of stock options is needed upon grant, during interim periods and at the final payment date to facilitate the calculation of the benefit extended to the Employees. For ESOPs, there are basically 2 types of Valuations: Accounting Valuation: This Valuation is required to amortize the Employee Compensation Cost during the vesting period. Accordingly, the compensation value is computed initially i.e. at the time of Grant and at the end of each reporting period till the liability in respect of Options granted gets settled. Perquisite Valuation: This Valuation would be conducted only in case of unlisted Companies, at the time of Exercise of Options by the Employee to know the value of the perquisite to be added in the Employee’s salary for the month in which he makes the exercise of his option.
  16. 16. DECISIVE CRITERIA Quantum  Attractive enough to create “wealth”  Coverage of Levels of Employees  Equity Share Capital Limit Pricing  Freedom to determine the Exercise Price in conformity with the Accounting Policies. Taxation Aspects  Income Tax related Vesting period(optional)  Minimum Period of 1 year for 1st Vesting.  Time based or performance based  Standard across the board or different for key people  Uniform, front-ended, back-ended Policy  Yearly / half-yearly / quarterly grants  New joinees – eligibility and effective date of grant  Promotions / group company transfers / termination / retirement
  17. 17. Quantum n’ number of employees Irrespective of their nationality Irrespective of being the employees of Holding/ Subsidiary/Associate Company
  18. 18. Pricing Criteria ESOPs are freely price able ESOPs can be issued at discount or premium Different pricing can be done for different category of employees Internationally Accepted methods are used in case of foreign employees
  19. 19. TAX TREATMENT In the hands of Employee At the time of Allotment: Taxable Value= FMV on the date of exercise of options- Exercise Price At the time of transfer of shares; Taxable Value= Sales Price of Shares-FMV of shares at the time of Exercise In the hands of Employer Shares issued on or after 1st April, 2009 under the ESOP Scheme- No tax Liability on Employer/Company.
  21. 21. OUR OFFERINGS Planning / Designing / Documentation Implementation / Employee Communication Administration ESOP Accounting & Valuation Opinion / Advisory Statutory Compliances ESOP Trust Formation
  22. 22. OUR VALUE ADDED SERVICES We at Corporate Professionals, provides a comprehensive solution for all ESOP related needs of any Company. OurWeb Application, is specifically designed by keeping in view the regulatory framework under which ESOPs Function.
  24. 24. For further clarification, please visit www.esoponline.in Corporate Professionals, D-28, South Ex-Part-1, New Delhi - 110 049, India, (B): +91 11 40622231 | (D): +91 11 40622200 | (F): +91 11 40622201 | (e) info@esoponline.in