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7/21/2019 Compensation Management-esops
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COMPENSATIONMANAGEMENT
XIME,BANGALORE
D T DEVARE
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W6Y ESOPs Povi%es a stong in#entive to #eate
'ealth
ESOP ena!les employees to shae inthe 'ealth they #eate
A #ost e7e#tive s#heme in 'hi#h
employee #ost is patly !one !y theSto#* Ma*et
In#eases #ommitment o& employees
Pevents !ain %ain
Ena!les In%ian #ompanies !"il% glo!al
!an%s
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IMPO8TANT TE8MS A,O+T ESOPs
Gant
Coveing an employee "n%e the ESOPs#heme) The gant shall spe#i&y then"m!e o& options given5 the time o&vesting5 et#)
Option An option is a ight !"t not an o!ligation
gante% to an employee to apply &o
an% !e allotte% shaes o& the #ompany at a pe:($e%pi#e
'ithin a spe#i(# peio% o& time
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ESOPs
;esting;esting means
the po#ess !y 'hi#h the employee getsthe ight
to apply &o the shaes
"n%e the options gante% to him)
Till the vesting ta*es pla#e5 the employee%oes not have a ight to apply &o theshaes)
I& an employee esigns o his employment
is teminate% &o any easons5 all "nveste%options shall e$pie as on that %ate
!"t the employee 'o"l% etain all theveste% options)
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ESOPs
;esting peio%
-) ;esting peio% means the peio% on #ompletion o&
'hi#h the vesting o& the optionso& the employee ta*es pla#e)
;esting #an ta*e pla#e in onesto*e o in a staggee% manne)
<o e$ample5 =00 options may
vest in an employee at the en%o& thee yeas O8 -00 options ea#h 'ill vest in him
at an inteval o& - yea) Th"s
=00 shaes 'ill vest in = yeas
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ESOPs E$e#ise means
Conveting the options into shaes
on payment o& the spe#i(e% pi#e)
E$e#ise peio% means the time peio% a&te vesting
'ithin 'hi#h the employee sho"l% e$e#isehis ight !y payment o& the spe#i(e% pi#e
I& an employees %oes not e$e#ise his ight
'ithin the peio%5 options lapse)
The employee may e$e#ise all the optionsveste% in him in one sto*e o in pats 'ithin the e$e#ise peio%)
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OPE8ATION O< EMPLOYEE STOCKOPTION PLANS
Noms a!o"t time peio%s@ Thee sho"l% !e a minim"m peio% o& one
yea !et'een the gant o& options an%vesting)
Thee sho"l% !e a ma$im"m peio% o&eight yeas !et'een the gant o& optionsan% vesting)
Options m"st !e e$e#ise% 'ithin ama$im"m peio% o& (ve yeas &om the%ate o& vesting)
Shaes iss"e% in e$e#ise o& options shallnot !e s"!e#t to any lo#*:in peio%)
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OPE8ATION O< EMPLOYEE STOCKOPTION PLANS
Non tans&ea!ility o& sto#* options
Options shall not !e tans&ea!le5 an%only the employee shall !e entitle% toe$e#ise the options)
Is ESOP Employee Compensation?
The a##o"nting val"e o& the options
shall !e teate%
as anothe &om o&employee #ompensation in the(nan#ial statements o& the #ompany)
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OPE8ATION O< EMPLOYEE STOCKOPTION PLANS
Compensation Committee o& the ,oa% The S#heme 'o"l% !e a%ministee% !y
a Compensation Committee o& the,oa% o& Bie#tos)
The Compensation Committee shall#onsist o& a maoity o& in%epen%ent%ie#tos)
The Compensation Committee %e#i%es
the "ant"m o& options to !egante% to employees as a 'hole
an% to any single employee
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ESOP: P8ACTICES O< INBIANCOMPANIES
E$e#ise peio% -F to /0 monthstheea&te
E$e#ise pi#e 8s)-00D: pe 'aant toget - shae o& 8s)-0
Lo#*:in:peio% <o H yeas5 the shaes#o"l% not !e sol%
.4 PLANE$e#ise pi#e-00> o& the &aima*et val"e
.. PLAN E$e#ise pi#e not less than&ai ma*et val"e
F00F PLAN: E$e#ise pi#e not lessthan &ai ma*et val"e
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INBIA
Almost all MNCs in the IT se#to have ESOPs
They #ove a lage > o& thei employees
Allotment is !ase% on Glo!al (nan#ialpe&oman#e o& the #ompany5 Pe&oman#e5Position5 Citi#ality o& employees
Allotment %e#isions ae geneally ma%e !ypaent #ompany
+se% vey aggessively to atta#t talentsome yeas ago
B"e to lo' ma*et pi#es5 the ESOPs inMNCs ae not vey atta#tive ight no'
Bespite the #"ent po!lems 'ith ESOPs5MNCs ega% them as an impotant#omponent o& thei Compensation stategy)
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ESOPs T6E NEGATI;ES
No g"aantee o& et"n
Shaehol%es %isli*e 'hen thesto#* "n%e:pe&oms the in%e$
Pomotes #an s"7e %il"tions
Ta$ation is an iss"e
s
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s BOWNT+8N
• Contay to the pop"la !elie&5
the most appopiate time togant ESOPs is 'hen thema*ets have hit the !ottom
• The option hol%es get shaes atlo'est possi!le pi#e5 'ith no%o'nsi%e is* an% highe
potential "psi%e)• Not all #ompanies ae ho'eve
enth"siasti# a!o"t this
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ESOPs C+88ENT ;IEW
A s"vey in ,angaloe #on%"#te% !y
a 'ell:*no'n In%ian CompensationCons"lting Company@
• H0> o& the espon%ents %i% not vie'ESOPs &avoa!ly
•
They &elt that ESOPs may !e o* athighe levels !"t not at lo'e levels
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ESOPs A COMPONENT O<COMPENSATION
ESOP s#heme #an get vey#ompli#ate%
Legal an% a##o"nting aspe#ts may
get "n%"e impotan#e)
68 po&essionals nee% to
emphasiJe that ESOPs ae apo'e&"l tool to atta#t5 motivatean% etain employees)