stock based compensations design for startups
Post on 02-Dec-2014
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STOCK BASED COMPENSATIONS
for
STARTUPS!!
Cherian M J
cherian@keynoteesop.com
EMPLOYEE STOCK OPTIONS PLANS
RESTRICTED STOCK UNITSRESTRICTED STOCK UNITS
STOCK APPRECIATION RIGHTS
cherian@keynoteesop.com
EMPLOYEE STOCK PURCHASE PLAN
RESTRICTED STOCK AWARDSRESTRICTED STOCK AWARDS
cherian@keynoteesop.com
SETTLED IN EQUITY OR CASH SETTLED IN EQUITY OR CASH
cherian@keynoteesop.com
SETTLED
IMMEDIATELY OR IN FUTUREIMMEDIATELY OR IN FUTURE
cherian@keynoteesop.com
LIFE CYCLE
VESTING SALE
GRANT EXERCISE
cherian@keynoteesop.com
GRANT – HOW MUCH DO I DILUTE?
COVERAGE - WHO & HOW MANY?
BENEFIT - WHAT IS THE MINIMUM BENEFIT?
VALUE - WHAT IS YOUR DREAM?
(THE EXPECTED UPSIDE)
cherian@keynoteesop.com
GRANT - OBJECTIVE
PAST PERFORMANCE REWARD
IN ANTICIPATION OF FUTURE PERFORMANCEIN ANTICIPATION OF FUTURE PERFORMANCE
JOINING BONUS
cherian@keynoteesop.com
GRANT - PRICE
FAIR MARKET VALUE
FACE VALUEFACE VALUE
DISCOUNT TO FAIR MARKET VALUE
(HIGHER ACCOUNTING CHARGE WITH DEEPER DISCOUNT)
cherian@keynoteesop.com
VESTING – SERVICE PERIOD
UNIFORM ACROSS THE BOARD
DIFFERENT FOR DIFFERENT PEOPLE
FRONT ENDED
BACK ENDED
UNIFORM OVER THE SERVICE PERIOD
cherian@keynoteesop.com
VESTING – HOW DO YOU EARN THE BENEFIT?
PASSAGE OF TIME
PERFORMANCE OF THE INDIVIDUALPERFORMANCE OF THE INDIVIDUAL
PERFORMANCE OF THE COMPANY
TOTAL INVESTOR RETURNS
cherian@keynoteesop.com
EXERCISE – NEW PARTNERS!!
LIQUIDITY OPTIONS:
- INITIAL PUBLIC OFFER?- INITIAL PUBLIC OFFER?
- TRADE SALE?
- BUY BACK?
cherian@keynoteesop.com
NEW PARTNERS – PROTECT THEM!!
ACCELERATE VESTING ON PROMOTER EXIT?
TERMINATE WITHIN 1 YEAR FROM CORPORATE TERMINATE WITHIN 1 YEAR FROM CORPORATE
ACTION? - ACCELERATE VESTING!!
cherian@keynoteesop.com
NEW PARTNERS – DEAL BREAKERS??
EXERCISE ONLY ON A LIQUIDITY EVENT?
cherian@keynoteesop.com
DOCUMENT IT & COMMUNICATE!
SHAREHOLDER APPROVALS
BOARD APPROVALS
PLAN DOCUMENT
EMPLOYEE AGREEMENT
TALK ABOUT THE PROGRESS & WEALTH!
cherian@keynoteesop.com
ACCOUNT FOR IT!
THIS IS A FORM OF COMPENSATION,
SO ACCOUNT FOR IT!
- OPTION VALUATION (BLACK-SCHOLES OPTION PRICING)
- DISCLOSURE IN NOTES TO ACCOUNTS
cherian@keynoteesop.com
REGULATORY NOTES
PRIOR APPROVAL OF SHAREHOLDERS
ONLY PERMANENT EMPLOYEES
NO PROMOTERS
NO INDEPENDENT DIRECTORS
MINIMUM 1 YEAR FROM GRANT TO VESTING
MINIMUM PRICE – FACE VALUE
cherian@keynoteesop.com
TRUST ROUTE
NOT UNLESS YOU WANT TO FACILITATE BUYBACKNOT UNLESS YOU WANT TO FACILITATE BUYBACK
cherian@keynoteesop.com
REGULATIONS
COMPANIES ACT, 2013
INCOME TAX ACT, 1961
GUIDANCE NOTE ON STOCK BASED COMPENSATIONS, ICAI
RBI GUIDELINES
SEBI (ESOS & ESPS) GUIDELINES, 1999
cherian@keynoteesop.com
INCOME TAX – TAX ON PERQUISITE VALUE
GRANT: NO TAX
VESTING: NO TAXVESTING: NO TAX
EXERCISE:
FMV AS ON EXERCISE – EP = PERQUISITE (SALARY)
cherian@keynoteesop.com
INCOME TAX- CAPITAL GAINS
SALE:
SALE PRICE – FMV AS ON EXERCISE = LONG/ SHORT SALE PRICE – FMV AS ON EXERCISE = LONG/ SHORT
TERM CAPITAL GAIN
cherian@keynoteesop.com
“YOU MAY NOT CHANGE THE WORLD, BUT YOU
CAN DEFINITELY CHANGE THE WAY A FEW PEOPLE CAN DEFINITELY CHANGE THE WAY A FEW PEOPLE
EXPERIENCE IT.”
cherian@keynoteesop.com
THANK YOU
CHERIAN M J
cherian@keynoteesop.com
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