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Human Resource Management: Employee Stock Option Plan
Human Resource Management: Employee Stock Option Plan
Human Resource Management: Employee Stock Option Plan
MANAGEMENT
motivation program
In a poll conducted by Business world in India
Objective Of ESOP
Objective Of ESOP
Whom to give ?
Senior
Junior
Middle
0-20%
30-50%
50-70%
Management
Structure
ESOP
Allocation
Incentive Mechanism
Grant Date
Option Price
Vesting Date
Exercise Period
Example
Shenoy Solutions, an IT company.
Has 100,000 shares currently priced at Rs. 10
The company offers an employee Girish on
HR creates option
plan
HR approves
exercise
transaction
Employee accepts
option plan
HR collects
payment
Vesting
period
Employee
exercises options
Shares are
issued into the
employees
account
Pricing
Scope of Stock
Option Plans
Lock-in
period, vesting
and exercise of
options
Non
transferability
of stock options
(ESOP) guidelines
- No lock-in where ESPP is part of public issue and
-Shares are issued at same price as in public issue
Free transferability after lock-in period
employee .
employees
Employer to pay out cash
Tax Treatment
For employees:
According to the Finance Bill 2009 - FBT on ESOPs has been
abolished.
ESOPs have been included in the purview of Perquisites under
Section 17 (2).
-Where the capital gain arises from the transfer of such shares
referred to in sub-clause (vi) of clause (2) of section 17, the cost of
acquisition of such security or shares shall be the fair market
value which has been taken into account for the purposes of the
said sub-clause.
Incidence of tax
Tax Treatment
For the company:
As per SEBI guidelines listed companies have to
Infosys
Infosys- pioneered the concept of ESOP in India in 1994
Infosys has rewarded - plumbers, peons, electricians
millionaires.
BPO
BPO pioneer- Raman Roy was setting up Spectramind in
Bharti
Telecom major Bharti group began its ESOP journey in 2001.
In 2005 - Everybody was covered and ESOPs were linked to the
Axis Bank
The management decided to pass on the FBT burden to employees,
exercised
April 2004 - More than three million options were
exercised
The amount of wealth created had exceeded Rs. 100 crore in April 2004 .
Axis Bank
April 2005 - Saw a fall in compare to first four years
of the plan
April 2007 - Less than 3 lakhs options were exercised
The amount of wealth created came down to Rs. 10 crore
Apri l 2008 saw a big shift in Axis Banks ESOP strategy
They narrowed the scope of the plan to only employees in
Few more
Conclusion
The wealth creation potential of ESOPs has not been
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