employee stock option esop

8/4/2019 Employee Stock Option ESOP

1/16

Employees stock option planEmployees stock option plan

Presented byPresented byGarimaGarima JunejaJuneja

ShardaSharda SonamSonam

MadhavMadhav

1ESOP


2/16

Introduced initially in technology based companies and now

spread over Pharmaceutical, Communication,Entertainment, information technology sectors. For exampleInfosys, HLL, WIPRO, Polaris, Dr Reddy, Ranbaxy,Wockhardt, Lupin, Gillette.have introduced this.

2ESOP


3/16


4/16

Retenti n t l and ring in a sense f c it ent.r f ensati n/reward.

reating a vi rant wners i c lt re.I r vement in individuals erf rmance.

yalty due t wners i fact r.T motivateemployees.Employees who aregranted stock options hope toprofit y

exercising their options at a higher price thanwhen theyweregranted.

4ESOP


5/16

Grant date- theemployee is givenoptions

Optionprice-thepricepaya le y theemployee, determinedy the compensation committeeof the oardof the

company for exercising theoptiongranted tohim. Vestingdate-theemployeegets the right to apply for & e

issued shares of the company under theoptions granted tohim.

Exerciseperiod-theemployees aregiven the timeperiodwithinwhich they are required toexercise theoption.

5ESOP


6/16

Create a trust(special purpose vehicle)

Giveoptions directly toemployees.

6ESOP


7/16

ESOP can be a one-time plan or an ongoing schemedepending upon the objectives that the company wants to

achieve:

Employee Stock Option Scheme (ESOS): Under thisscheme, the company grants an options to its employees toacquire shares at a future date at a pre-determined price.Eligible employees are free to acquire shares on vesting

within the exercise period.G

enerally exercise price is lowerthan the prevalent market price.

ESOP 7


8/16

Employees Stock Purchase Plan (ESPP): This isgenerally used in listed companies, wherein theemployees are given the right to acquire shares of thecompany immediately, not a future date as in ESOS,at a price lower than the prevailing market price.

Shares issued by listed companies under ESPP will besubject to lock-in-period, as a result, the employee

cannot sell the shares and the employee has to continuewith the employer for a certain number of years.

ESOP 8


9/16

Share Appreciation Rights (SAR)/ Phantom

Shares:No shares areofferedor allotted to

theemployee. Theemployee is given theappreciation in the valueof shares betweentwo specifieddates as an incentiveor

performancebonus, that is linked to the

performanceof the company as a whole, asreflected in its share value.

ESOP 9


10/16

According to the companies act: Issue of stock options requires approval of shareholders

as per section 81(1a) & In private companies it can beissued without shareholders approval but approval bytheboard ofdirectors.

In an ESOP, a company sets up a trust fund, into which itcontributes new shares of its own stock or cash to buy

existing shares. The company contributions to the trustare tax deductible, within certain limits.

ESOP 10


11/16

Shares in the trust are allocated to individual employee accounts.Allocations are made on the basis of relative pay or some moreequal formula.

According to the seniority with the company, they acquire an

increasing right to the shares in their account, a process known asvesting. Employees must be 100% vested within 3 to 6 years,depending on whether vesting is all at once or gradual.

hen employees leave the company, they receive their stock,which the company must buy back from them at its fair marketvalue.

In private companies, employees must be able to vote theirallocated shares on major issues, such as closing, relocating, butthe company can choose whether to pass through voting rights onother issues. In public companies, employees must be able to voteto vote all issues.

ESOP 11


12/16

Tobuy the shares of a departingowner

Toborrowmoney at a lower after-tax cost

To create an additional employeebenefits

12ESOP


13/16

Improved relationshipbetweenemployees andmanagement.

Potential for wealth creation

Increasedmorale and loyalty

Senseof company ownership for ESOPparticipants

13ESOP


14/16

The cost of settingup anESOP is around30,000US $

hen any new shares are issued, the stock ofexisting

employees will becomediluted.

Private companies must buy back departingemployees

shares, and this canbecome a major expense.

14ESOP


15/16

Despite thehighs and the lows, the important point to

remember is that ESOPs canhelp youestablish a transitionplan for your business by:

Creating a market for your companys stock

Allowing you to sell your business gradually insteadofexisting suddenly

Providing anownership culturewithin your company

15ESOP


16/16

THANK YOU..

ESOP 16

employee stock option esop

Documents