We have tried to tell how the ESOP may be implemented successfully without any interruptions and helps in understanding the law in a better way. It cautious us to take care of factors which may create problems in future / later on .

1. IOLCP

2.  Nature of Employee Stock Options
(ESOP)
 Main concepts used in ESOP
 Main concepts explained with example
 Granting of Options
 Vesting of Options
 Exercising of Options
 Points to be decided for preparing the
ESOP
IOLCP

3.  Employee stock options are rights
granted by the company to its employees
to apply its own shares of the company at
a exercise price determined at the time of
granting ( giving ) of options.
 They are to be paid at the time of issue of
shares.
IOLCP

4.  Eligible Employee: permanent employee of the
company excluding promoter or persons holding
10% or more of holding and independent
director
 Grant/Granting of options: means when an
employee given an option(s)
 Vesting / Vesting of options: means when an
employee is given right to apply for shares in the
company .
 Vesting period: means the period after which an
employee is entitled to apply for shares in the
company .
IOLCP

5.  Exercise price: means the price at which
the employee have right to apply for the
shares in the company .
 Exercise period : means the period
during which an employee is entitled to
apply for shares in the company.
IOLCP

6.  For example a company grants 1000 options to an employee
on 1 October 2014 with the condition that he is entitled to
apply for one share , for each option after expiry of one year ,
at a price of Rs 20 per share with in period of five years from
the date of vesting . ( means his entitlement )
 Thus it means , that 1000 options will be vested in him after the
expiry of one year of granting of options that is on 1 October
2015.
 It means he will be entitled to apply for 1000 shares ( one share
for each option ) at a price of Rs 20 per share at any time during
the period of 1 October 2015 to 1 October 2019 ( exercise
period of five years ) in respective of its price in the market by
paying the amount at the time of allotment .
IOLCP

7.  1 October 2015 will be know as Vesting Date, and
period from 1 October 2014 to 1 October 2015 will be
known as Vesting Period .
 The price of shares of Rs 20 per share will be known as
Exercise Price .
 The period from 1 October 2015 to 30 September 2019
will be known as Exercise Period.
 The employee may apply for 500 shares on 1 October
2015 by paying Rs 10,000 at the rate of Rs 20 per share
on 1 October 2015 and may apply for remaining 500
shares on 30 September 2019 (within the exercise period
of five years by paying Rs 10,000 at rate of Rs 20 per
share on 30 September 2019 irrespective of market
price at that time that .
IOLCP

8.  The company may grant the a number of options
to its eligible employees depending upon
certain criteria like designation , period of service
and performance etc .
 Each option will entitle the employee to apply
for one share in the company at the exercise price
( price per share) .
 Exercise price is determined by the company at
the time of granting of options to the employees.
 The company has liberty to determine the
exercise price.
IOLCP

9.  The exercise may be fixed at par or at market price
or at certain discount to the market price at the time
of granting of options .
 The company has liberty to determine the number
of options to be granted to the eligible employees.
 The company have to determine the maximum
number of options an employee may be granted .
 In case a company wish to provide more than 1% of
its equity capital to an employee , then it has to take
special approval from its shareholders , thus a
company generally restricts its option less than 1%
of its holding.
IOLCP

10.  Options granted to an employee will be vested
in him after expiry of vesting period which will
be fixed at the time of granting of options .
 There is a vesting period during which options
cannot be exercised
 Vesting period is minimum one year from the
date of granting the options.
 The company has liberty to determine the
vesting period after which options may be
exercised .
IOLCP

11.  Generally companies fix the vesting period
from one to four years from the granting date of
options.
 When employees leave during the vesting
period options are forfeited
 When employees leave after the vesting period
options are exercised immediately before
relieving. .
 Employees are not permitted to sell/transfer
options
IOLCP

12.  Options can be exercised after the vesting date
that is after the expiry of vesting period .
 Vesting date is the date from which the
employees are entitled to exercise their options
that is their right to apply for the shares at the
exercise price .
 Options may be exercised in one or more
tranches (installments) during the exercising
period .
 The company may fix the minimum number of
options which may be exercised in one tranche .
IOLCP

13.  Exercised period is the period during which
an employee may exercise his options to
subscribe the shares after the vesting date.
 The company has liberty to determine the
period during which options may be
exercised .
 Generally companies fix the exercise period
from three to ten years from the vesting date.
 An employee is required to make the
payment of price of shares at the time of
allotment.
IOLCP

14.  Maximum number of options to be granted
to an employee.
 To determine the exercise price .
 To determine the vesting period .
 To determine the exercising period.
IOLCP