The document outlines the importance of employee stock option plans (ESOPs) as a tool for attracting and retaining employees while promoting a culture of ownership among them. It details the regulatory framework, procedures for implementing ESOPs as per the Companies Act, and the valuation methods necessary for managing them. Additionally, it offers insights into the organizational support available for companies implementing ESOPs through Corporate Professionals.

1. An Online Venture of
EMPLOYEE STOCK OPTION PLAN
Mohini Varshneya
9971673332 / 011-40622231
mohini@indiacp.com
info@eesoponline.in

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. 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
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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. 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. 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. ROUTES UNDER ESOP
Direct
Route
Trust
Route

7. Direct Route

8. Trust Route

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. 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. 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. 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. 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. 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. 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. 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. Quantum
n’ number of employees
Irrespective of their nationality
Irrespective of being the employees of Holding/
Subsidiary/Associate Company

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. 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.

20. DEPARTMENT INVOLVED IN THE PROCESS OF ESOP
HR
DEPARTMENT
LEGAL &
SECRETARIAL
DEPARTMENT
ACCOUNTS
DEPARTMENT

21. OUR OFFERINGS
Planning /
Designing /
Documentation
Implementation /
Employee
Communication
Administration
ESOP
Accounting &
Valuation
Opinion /
Advisory
Statutory
Compliances
ESOP Trust
Formation

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.

23. SOME OF OUR ESOP CLIENTELE

24. For further clarification,
please visit
www.esoponline.in
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India, (B): +91 11 40622231 | (D): +91 11 40622200 | (F): +91 11
40622201 | (e) info@esoponline.in