EMPLOYEE STOCK OPTION PLAN

An Online Venture of

Mohini Varshneya 9971673332 / 011-40622231mohini@indiacp.cominfo@eesoponline.in

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

EmployeesSTOCKS

 is a venture promoted by Corporate Professionals Group, which is best

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ABOUT US

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.

WHY ESOP???

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

Direct Route

Trust Route

ROUTES UNDER ESOP

Direct Route

Trust Route

WHO ARE NOT COVERED UNDER THE AMBIT OF TRUSTEES

Directors

Key Managerial Personnel

Promoter of he Company

Company or its Holding, Subsidiary

or Associate Company

Or any relative of such Director, Key Managerial Personnel or Promoter

Beneficial owner holding 10% or more of the paid-up capital

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

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);

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.

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.

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.

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.

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

Quantum

n’ number of employees

Irrespective of their nationality

Irrespective of being the employees of Holding/ Subsidiary/Associate Company

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

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.

HR DEPARTMEN

T

LEGAL & SECRETARIA

L DEPARTMEN

T

ACCOUNTS DEPARTMEN

T

DEPARTMENT INVOLVED IN THE PROCESS OF ESOP

OUR OFFERINGS

Planning / Designing /

Documentation

Implementation / Employee

Communication

Administration

ESOP Accounting &

Valuation

ESOP Trust Formation

Statutory Compliances

Opinion / Advisory

We at Corporate Professionals, provides a comprehensive solution for all ESOP related needs of any Company.

Our Web Application, is

specifically designed by keeping in view the regulatory framework under which ESOPs Function.

OUR VALUE ADDED SERVICES

SOME OF OUR ESOP CLIENTELE

For further clarification, please visit

www.esoponline.in

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