Employee stock option scheme and employee stock purchase scheme guidelines 1999


With the intent to bring transparency in the operations of the Trusts formulated for extending Welfare Benefits to the Employees, SEBI vide its Circular dated 17th January, restricted the Employee Welfare Trusts to buy shares from the secondary market and to dilute their existing holding by 30th June, Phantom Stocks unique blend of Employee appreciation, with no Equity dilution. ESOP give the employee a right to buy a specific number of company's shares at a fixed price within a certain period of time. SEBI has further mandated the Listed Entities to disclose further details related to the Schemes to the Stock Exchanges by June 30, and in order to keep an eye on the listed entities, has further casted a responsibility on the listed entities to submit details related to allotments made or options granted post 17th January, and up to 31st December, within 7 days from the end of the quarter. SEBI had although suggested the way outs for such Trusts but in our opinion, under both the options suggested by SEBI, there were certain fall outs, which might need to be addressed by the Regulator.

ESOP give the employee a right to employee stock option scheme and employee stock purchase scheme guidelines 1999 a specific number of company's shares at a fixed price within a certain period of time. The author and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. On analysing the disclosures filed by the Listed Entities, we observed that: The entire contents of this document have been developed on the basis of relevant statutory provisions and the information available at the time of the preparation.

Employee Stock Option Plan ESOP is considered as one of the most contemporary and important tool to retain human assets of the Company and to reward the high potential employees. On analysing the disclosures filed by the listed entities, it was observed that majority of the companies appx. Under ESOPs, the options based upon the eligibility criteria of the Employees, are issued to them, which an employee after the expiry of the specified period, can convert them into the equity shares of the company and participate in the ownership of the company along with the other shareholders. With the employee stock option scheme and employee stock purchase scheme guidelines 1999 of aligning the existing Employee Welfare Schemes and working of the Employees Welfare Trusts, SEBI itself, vide the said Circular, had prescribed the following two modes for diluting the shareholding acquired by the said Employees Welfare Trusts from the Secondary Market by 30th June, Further, the 2nd option may raise various concerns related to accounting aspect for the substantial loss or gain that may arise on account of bulk selling of the shares by the Trusts.

In this regard, upon receipt of various representations seeking clarification on the applicability of the Circular and for extension of time period for dilution of shareholding by the Trusts, SEBI has further come out with the subsequent amendment in order to address various ambiguities for dilution of shareholding by the Trusts and its impact on the Capital Market. The feeling of ownership acts as a motivational boost for the employees to have long-term aspirations and association with the organisation. The author and the company expressly disclaim all and any liability to any person who has read this employee stock option scheme and employee stock purchase scheme guidelines 1999, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. The entire contents of this document have been developed on the basis of relevant statutory provisions and the information available at the time of the preparation.

On analysing the disclosures filed by the Listed Entities, we observed that: As there was no restriction on employee stock option scheme and employee stock purchase scheme guidelines 1999 purchase of shares from the secondary market by the Trust for creating a pool of shares for transferring them to the Employees as and when they exercise, the Market Regulator observed that some companies had created the Trusts only with the intent to purchase and sell the shares in the Secondary market under the umbrella employee stock option scheme and employee stock purchase scheme guidelines 1999 the ESOP Scheme with the sole objective to inflate, depress, maintain or fluctuate the price of their own shares by engaging in fraudulent and unfair trade practices, which is a highly debarred act under the securities laws of the country. With the intent to bring transparency in the operations of the Trusts formulated for extending Welfare Benefits to the Employees, SEBI vide its Circular dated 17th January, restricted the Employee Welfare Trusts to buy shares from the secondary market and to dilute their existing holding by 30th June, Retention of talented employees is essential for the growth and brand value of the company. SEBI had although suggested the way outs for such Trusts but in our opinion, under both the options suggested by SEBI, there were certain fall outs, which might need to be addressed by the Regulator.