EMPLOYEE STOCK OPTION PLANS Managements Pe Perspe pect ctiv ive - - PowerPoint PPT Presentation
EMPLOYEE STOCK OPTION PLANS Managements Pe Perspe pect ctiv ive e for St Stock ck Optio ion With the intent to appoint and retain the human assets of the Company and to reward the high potential employees of the Company including new
With the intent to appoint and retain the human assets of the Company and to reward the high potential employees of the Company including new recruits, the Company proposes to implement and execute Employee Stock Option Plan(s) therein.
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 plans are being increasingly used as a compensation tool by the organizations 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
is a venture promoted by Corporate Professionals Group, which is best illustrated for providing widest spectrum of corporate services at
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
expertise in delivering supreme corporate services utterly justifies our name, Corporate Professionals.
To attract, reward, motivate and retain employees for high levels
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
incentive Companies grant an option to employees to acquire shares of their employer company over a period of time at a reduced 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.
RE RESTRU RUCTURING CTURING MOD ODES S UN UNDE DER R STOC OCK K OPTI TIONS NS
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 Appreciati
(SARs)
Phantom Stocks
Employee Stock Option Scheme (ESOS)
Employee Stock Option Schemes are the most commonly used form for employee
Stock options are subject to vesting, requiring continued service over a specified period of time. Upon vesting of options, employees can exercise the options to get shares, by paying the pre- determined exercise price. The principle message conveyed to the employees through ESOS is that, if they stay long enough till vesting, they stand to gain significantly through exercising the options. ESOPs are generally offered by offering fresh equity resulting in dilution of Promoters’ stake and an alteration in the company equity structure.
Employee Stock Purchase Plans allow Employee to purchase Company’s shares, often at a discount from Fair Market Value. The terms of the Plan determines the tenure and price for possession of the Company’s shares by the Employees. Usually, ESPPs are being framed for
Under such incentive plans, the Employee is awarded with the shares subject to fulfillment of certain underlying conditions. If the said underlying conditions are not fulfilled then the awarded shares stand withdrawn. The employee may be required to pay for RSA at grant which may be at a discount or more, generally, shares are awarded free of cost. Under this plan, full rights may be conditional and predicated on the occurrence of certain events e.g. continued employment and/or achievement of certain business measures. During the restricted period, the employee enjoys full share-holder rights, except for the right to sell or transfer the shares.
Restricted Stock Units (RSU)
Under Restricted Stock Units Plan, an Employee is awarded with the right to receive shares on a pre-determined date subject to occurrence of a specified event or fulfillment of specified conditions. In such kind of incentive plans, the Employee becomes shareholder only upon occurrence of a specified event or fulfillment of specified conditions.
Although, SARs are not technically employee stock options, companies often use them in a like manner. SARs provide employees with cash payments equal to the appreciation of the company’s stock over a specified duration. Thus, unlike other options, SARs provide employees with equity upside without exposure to any downside.
Phantom stock is a form of long-term deferred compensation using the Company shares as the measuring device for calculating the value of the deferred
represent true ownership. The Company simply credits these phantom shares on its books and as the value of the company shares rises and falls, so does the value of the phantom stock.
Acquisition from Existing Investors Fresh Subscription from Company
Trust can acquire shares by
Provisions governed under Companies Act,2013; Provisions governed 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 / Directors related to Promoter Group
The Indian Laws that govern the framework of ESOPs are:
Companies Act, 2013 along with Rules; Income Tax Act, 1961 (including Rules and Circulars issued there under); Foreign Exchange Management Act, 1999 (including Rules and Regulations enacted there under);
Quantum
Pricing
Accounting Policies. Taxation Aspects
Vesting period
Policy
n’ number of employees Irrespective of their nationality Irrespective of being the employees of Holding/ Subsidiary Company
ESOPs are freely price able ESOPs can be issued at discount or premium from market price Different pricing can be done for different category of employees
TAX TREATM ATMEN ENT
In the hands of Employee
At the time of Allotment: Taxable Value= FMV on the date of exercise of
At the time of transfer of shares; Taxable Value= Sales Price
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.
Step 1
Step 2
scheme of ESOP. Step 3
Step 4
issue the option certificates. Step 5
Company shall issue a letter of vesting along with the letter of exercise of options. Step 6
Step 7
Step 8
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
period as the Management decides, in the Scheme.
In any Stock Option Plan, the Valuation aspect plays a very crucial
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.
Since in case of Pvt. Cos., manner of transfer can be regulated by Articles of Association of the Company that generally involves prior approval of the Board, therefore, with the sole objective of providing liquidity, Private Limited Companies can mention the name of specified person who will purchase shares from them.
HR DEPARTMENT LEGAL & SECRETARIAL DEPARTMENT ACCOUNTS DEPARTMENT
4/22/2016
4/22/2016
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