Post on 07-Apr-2018
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Employees stock option planEmployees stock option plan
Presented byPresented byGarimaGarima JunejaJuneja
ShardaSharda SonamSonam
MadhavMadhav
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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.
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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.
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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.
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Create a trust(special purpose vehicle)
Giveoptions directly toemployees.
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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.
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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.
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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.
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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.
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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.
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Tobuy the shares of a departingowner
Toborrowmoney at a lower after-tax cost
To create an additional employeebenefits
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Improved relationshipbetweenemployees andmanagement.
Potential for wealth creation
Increasedmorale and loyalty
Senseof company ownership for ESOPparticipants
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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.
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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
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THANK YOU..
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