A big chunk company’s success lies in the hands of its employees. Hence, encouraging them with the right rewards, especially financially, is a boost like no other.
This is where the ESOPs come in. An ESOP or Employee Stock Ownership Plan works for employer-employee benefits. It gives its workers an ownership interest in the company via shares of stocks.
This plan rewards the company as well as its employees. But first, you need to understand its working and terms to reap all benefits of SEBI ESOPs.
The SEBI (Securities and Exchange Board of India) regulates ESOPs (Employee Stock Ownership Plans). It aims to encourage employee ownership within companies. It fosters sincere employee contributions with a promise of financial rewards in exchange.
With this plan, employers offer stocks of the company to employees at lower costs. Further, these shares get enchased after a certain period at a certain price.
Firstly, the employers decide how many shares to offer under ESOPs, and prices and provide a grant date.
Following this, the allotted ESOPs remain in the trust fund for the vesting period. After the vesting period, employees can exercise these ESOPs and buy company shares at given prices.
Eventually, selling these shares brought under ESOPs helps with gaining profits. But there are specific SEBI ESOP guidelines that both parties must follow to reap the benefits of SEBI ESOPs.
The updated SEBI ESOP guidelines in 2021 state the following.
The benefits of ESCOP no longer extend to just ‘exclusive employees.’ Instead, it reaches ‘employees,’ which states a non-exclusive basis. Previously, the eligibility stretched to only permanent employees of the company, which now incentivises non-permanent employees too.
If an employee dies or faces permanent incapacity, there will be no vesting or lock-in period. The benefits will be immediately transferred to nominees or legal heirs. Previously, SEBI ESOP regulations did not mention such cases.
Current SEBI ESOP guidelines permit companies to change the implementation scheme if necessary. In such circumstances:
The limits set on sweat equity shares as per new SEBI ESOP regulations include the following:
When a scheme is approved by shareholders, the excess money or share must be transferred to another recommended scheme.
Today, employee compensation has evolved beyond basic payments and offers. It focuses on employee encouragement through several implementations, including the Employee Stock Ownership Plan.
The companies act 2013, and SEBI keeps updating ESOP regulations to make them simple but robust globally. There are many benefits of SEBI ESOPS if you understand its terms and conditions.
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The minimum lock-in period, that is, from the grant date to the vesting date, is one year.
Companies Act 2013 with SEBI list certain guidelines for ESOPs in companies. These rules define issues, resolutions, lock-in periods, etc.