FREE online courses on ESOP - Understanding ESOP - The Decisions of the
Trust
The Trust decides how
- Bonus
shares,
- Rights
issued and
-
Dividends will be passed on to the employee concerned.
- Rights
issues for the unallotted portion of shares will require further funding of the
Trust if the income accrued is not sufficient.
After the shares are transferred in favor of the employee
on his/her fulfilling all terms and conditions, the employee may decide to sell
the same in the market. Such sale will attract capital gains tax provision.
Consequent to the Finance Act ‘99, the cost of acquisition will reckon the
income tax paid by the employee for the difference, if any, between the exercise
price and the market price.
The Indian experience is rather limited and yet presents
innovate forays into establishing stock plans. There has been a general euphoria
with the schemes so far and indications are that there will be great variety and
wider usage in the coming years.
This is true of both public as well as the private sectors.
Company A
- Offers
employees 1000 share each, at face value.
- Lock-in
period of 3 years or 10 years of service.
- If
employee leaves, he can sell shares at par value to individual nominated by the
board.
- The
proposal envisages a part of the shares for implementing general welfare
schemes for employees.
- The
employees will have no right to the shares credited their account till
superannuation or death.
- This
proposal has not yet been implemented.
Company B
- Enables
employees to purchase the stock offered by the company at the set price giving
them a soft loan with an elongated repayment schedule and keeping the shares as
security.
- Lock-in
period is of 3 years and separate documentation / agreements were entered into
with such employees.
- A
company with an initial grant to enable it to acquire shares contemplated
Trust.
Company C
- The
Trust was vested with the right to purchase stock from the market or employees
if required in the future.
- The
employees are required to remit a token sum while accepting the offer and keep
the option alive.
- The
major objective behind this scheme is to improve the shareholder value.
Company D
- A
company in the private sector formed a plan allocating warrants to the freshly
created welfare Trust.
- The
major objective of the plan is to attract, retain and motivate the best talent.
- It
also created an advisory Board with external members to choose employees and
make recommendations to the Trust.
- On
recommendation of the advisory board, the Trust would transfer warrants to the
employees at a nominal sum.
- The
employee is entitled to one-equity share of face value of Rs.10/- each per
warrant at an exercise price of Rs.100/- or such amount as may be decided from
time to time.
- The
exercise period is 12 months to 60 months from the date of issue of warrants.
The exercise date has been specified within each year.
- As a
shareholder, the employee will be eligible for dividends, bonus and rights.
During the lock-in, the shares registered in the name of the employee would be
kept in the safe custody of the Trust.
This plan had the multiple objectives of attraction,
retention and also performance management. Though it was initially meant for a
limited number of people, it is gathered that the coverage has been growing.
