EMPLOYEE STOCK OPTION PLANS Managements Pe Perspe pect ctiv ive - PowerPoint PPT Presentation

EMPLOYEE STOCK OPTION PLANS

Management’s Pe Perspe pect ctiv ive e for St Stock ck Optio ion With the intent to appoint and retain the human assets of the Company and to reward the high potential employees of the Company including new recruits, the Company proposes to implement and execute Employee Stock Option Plan(s) therein.

Wh What at ar are e St Stoc ock k Opt ptio ions? ns? Stock Option Plans/Equity Incentive Plans (commonly referred to as ESOPs) are one of the most important tools to attract, encourage and retain Employees. Nowadays, these plans are being increasingly used as a compensation tool by the organizations with the basic premise of creating wealth for the Employees, on one hand and motivating Employees to have long-term career aspirations in the Organization, on the other. Extending benefits through ESOPs is like creating a win-win situation for both Employer & Employee. Owners Employees

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Why hy Sto tock ck Opt ptio ion n ???? ??? To attract, reward, motivate and retain employees for high levels of individual performance and for unusual efforts. Promote employee ownership culture and reduce the attrition. To improve the financial performance of the Company, which will ultimately contribute to the success of the Company. Enhances job satisfaction of the Employee due to ownership incentive Companies grant an option to employees to acquire shares of their employer company over a period of time at a reduced price or nil price. ESOP proves to be a good retirement benefit plan for employee. Therefore ESOP is primarily a kind of incentive to hold the employees to the company's fold.

RE RESTRU RUCTURING CTURING MOD ODES S UN UNDE DER R STOC OCK K OPTI TIONS NS Stock Indexed Plans Stock Options (No sharing in the (Sharing in the Capital of the Capital of the Company) company) Employee Employee Stock Stock Stock Restricted Appreciati Phantom Option Purchase Stock Units on Rights Stocks (RSUs ) Scheme Plan (SARs ) (ESOS ) (ESPP )

RES ESTR TRUCTU TURING G MODES ES UNDER ER ES ESOPs Ps Employee Stock Option Scheme (ESOS) Employee Stock Option Schemes are the most commonly used form for employee ownership. The option granted under the plan confers a right but not an obligation on the employee. Stock options are subject to vesting, requiring continued service over a specified period of time. Upon vesting of options, employees can exercise the options to get shares, by paying the pre- determined exercise price. The principle message conveyed to the employees through ESOS is that, if they stay long enough till vesting, they stand to gain significantly through exercising the options. ESOPs are generally offered by offering fresh equity resulting in dilution of Promoters’ stake and an alteration in the company equity structure. ------------------------------------------ Employee Stock Purchase Plan (ESPP) Employee Stock Purchase Plans allow Employee to purchase Company’s shares, often at a discount from Fair Market Value. The terms of the Plan determines the tenure and price for possession of the Company’s shares by the Employees. Usually, ESPPs are being framed for offering shares as a part of public issues. ------------------------------------------ Restricted Stock Award (RSA) Under such incentive plans, the Employee is awarded with the shares subject to fulfillment of certain underlying conditions. If the said underlying conditions are not fulfilled then the awarded shares stand withdrawn. The employee may be required to pay for RSA at grant which may be at a discount or more, generally, shares are awarded free of cost. Under this plan, full rights may be conditional and predicated on the occurrence of certain events e.g. continued employment and/or achievement of certain business measures. During the restricted period, the employee enjoys full share-holder rights, except for the right to sell or transfer the shares.

RES ESTR TRUCTU TURING G MODES ES UNDER ER ES ESOPs Ps Restricted Stock Units (RSU) Under Restricted Stock Units Plan, an Employee is awarded with the right to receive shares on a pre-determined date subject to occurrence of a specified event or fulfillment of specified conditions. In such kind of incentive plans, the Employee becomes shareholder only upon occurrence of a specified event or fulfillment of specified conditions. ------------------------------------------------------------- Stock Appreciation Rights (SARs) Although, SARs are not technically employee stock options, companies often use them in a like manner. SARs provide employees with cash payments equal to the appreciation of the company’s stock over a specified duration. Thus, unlike other options, SARs provide employees with equity upside without exposure to any downside. -------------------------------------------------------------------------- Phantom Stocks Phantom stock is a form of long-term deferred compensation using the Company shares as the measuring device for calculating the value of the deferred compensation. It simulates the Company shares in everything except that does not represent true ownership. The Company simply credits these phantom shares on its books and as the value of the company shares rises and falls, so does the value of the phantom stock.

Rou oute tes s Und nder er ESOP OP Direct Route Trust Route

Dir irect ect Rou oute te

Trus ust t Rou oute te

Acqu quisitio isition n of of Sha hares es by by Trus ust Trust can acquire shares by Acquisition Provisions governed under from Existing Companies Act,2013; Investors Fresh Subscription Provisions governed under from Company Companies Act,2013;

Ar Arena Of Em Employe yees es Under r Compani nies es Ac Act, , 2013 Employees Covered Permanent Employees Whole Time Directors Other Directors Employees Not Covered Temporary Employees Independent Directors Directors holding 10% capital of the Company. Employees / Directors related to Promoter Group

Reg egul ulat atory ory Reg egim ime The Indian Laws that govern the framework of ESOPs are: Companies Act, 2013 along with Rules; Income Tax Act, 1961 (including Rules and Circulars issued there under); Foreign Exchange Management Act, 1999 (including Rules and Regulations enacted there under);

Decisive cisive criteria iteria Quantum  Attractive enough to create “wealth” Coverage of Levels of Employees  Equity Share Capital Limit  Pricing Freedom to determine the Exercise Price in conformity with the  Accounting Policies. Taxation Aspects Income Tax related  Vesting period  Minimum Period of 1 year for 1st Vesting. Time based or performance based  Standard across the board or different for key people  Uniform, front-ended, back-ended  Policy Yearly / half-yearly / quarterly grants  New joinees – eligibility and effective date of grant  Promotions / group company transfers / termination / retirement 

Qua uant ntum um n’ number of employees Irrespective of their nationality Irrespective of being the employees of Holding/ Subsidiary Company

Prici icing ng Criteria iteria ESOPs are freely price able ESOPs can be issued at discount or premium from market price Different pricing can be done for different category of employees

TAX TREATM ATMEN ENT In the hands of In the hands of Employee Employer At the time of transfer of Shares issued on or after At the time of Allotment: 1 st April, 2009 under the shares; Taxable Value= FMV on ESOP Scheme- No tax Taxable Value= Sales Price the date of exercise of Liability on of Shares-FMV of shares at options-Exercise Price Employer/Company . the time of Exercise

ESOP ES P Pr Proc oced edure ure As As Pe Per Com ompa pani nies es Ac Act, t, 2013 2013 • Hold a Board Meeting to consider ESOP. Step 1 Step • If required constitute Compensation Committee and Compensation Committee shall plan the 2 scheme of ESOP. • Hold General Meeting of the Shareholders for approval of the ESOP Scheme. Step 3 • On receipt of letter of acceptance of option along with upfront payment, from the Employee, Step issue the option certificates. 4 • After expiry of vesting period, the options shall vest in the employee. At that time, the Step Company shall issue a letter of vesting along with the letter of exercise of options. 5 • Receipt of letter of exercise from employee during the exercise period. Step 6 • Hold a Board Meeting at the suitable interval during the exercise period for allotment of shares Step on options exercised by the Employees. 7 • Dispatch of letter of allotment along with the share certificates. Step 8