esop advisory & execution

Sarthi Capital Advisors Private LimitedBridging the Gaps

ESOP Advisory & Execution

Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company1

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ESOP Advisory & Execution

Employee Stock Based

Compensation Plan

Employee Stock Option Plan (ESOP)

Basic Plan

Employee Share Purchase Scheme

(ESPS)

Stock Based Compensation Plans

Basic ESOP – Broad Framework


Basic Plan

Restricted Stock units

Phantom Stock

Stock Appreciation

Rights

� A Right, Choice, but not an Obligation

� Each option converts into one or more Equity Shares

� To buy the shares of the Company at a future date

� At a price fixed today- the excise price

� Excise Price remains fixed even if the market price /

benchmark value goes up in future

� Employee would pay only if the market price / benchmark

value is attractive- no investment upfront

Basic ESOP – Broad Framework

Market / Value

Enhancement

To attract, reward,

motivate, and retain

Promote Employee ownership

Improve financial

performance of the Industry

Why ESOP – The Rationale


Value Enhancement pays, not the

company from its cash kitty

motivate, and retain

employees especially at start up and growth stage

Employee ownership culture and

reduce attrition rate

performance of the

company, ultimately

contributing to the success

Industry Trends

GRANT (Receives the right)

VESTING (Earns the right)

EXERCISE (Exercise the right)

SALE (Sells the share)

ESOP Illustration

ESOP Life Cycle and Wealth Creation


Particulars Year-0 Year-1 Year-2 Year-3 Year-4 Total

FMV 100 150 225 300 400

Less: Excise Price 100 100 100 100

Benefit per Option 50 125 200 300

Total Benefit in the year 12,500 31,250 50,000 75,000 168,750

ESOP Illustration

� 1000 options are granted at time-0, and the price prevailing at time -0 is Rs. 100.

� ESOP’s are vested in the Year 1-4 equally (i.e. 25% each year)

Legal and Regulatory Framework

SEBI (Employees Stock option Scheme & Employee Stock Purchase Scheme) Guidelines, 1999

Depositories Law

Companies Act, 1956


Accounting Standards / Norms

Foreign Exchange Management Act (FEMA), 1999 & Regulations issued there under

Income Tax Act, 1956

Department of Public Enterprises (DPE) Guidelines (Additional guidelines for PSU’s)

Methods of ESOP

Creation of Trust

Creation of trust by appointing a trustee to hold the shares/ options in

trust for employees who can subscribe to the shares reserved at a

later date and at a pre-determined price

Directly to Employees

Formulate a scheme of ESOP wherein an option can be reserved in favor of employees to subscribe to the shares of the company at


to subscribe to the shares of the company at a future date and at a pre-determined price

ESOP Scheme – Most important document in ESOP, a binding

contract between the company and employees

Quantum

-Attractive enough to create “Wealth”

-Coverage of levels of Employees

Vesting Period

-Time based or Performance based

-Standardized/ Employee to employee

Policy

-Time Tenure, (e.g. quarterly, yearly)

-Eligibility for new and old employees

Liquidity Options Pricing

-Market Value

Impact of Corporate Actions

Contours of a typical ESOP Scheme


-How the employee can convert the shares so allotted into cash

-Market Value

-Discount- less dilution

Actions

-Bonus/ Rights/ Splits, etc

Coverage

-Broad based or selective/ Subsidiary

Exercise

-Periodicity

-Pricing

-Issue / Allotment

We can help you

� What are the objectives of the plan? (e.g. Employee ownership, performance

incentive, retention?)

� How to manage dilution? (time-based or performance based or both, standard or

answer plan design questions


differentiated)

� What is the optimal pricing strategy to balance expense and reward?

� What are the legal and regulatory implications and requirements of your plan?

� How will changes in the components of the plan impact its performance and impact

(sensitivity analysis)?

� How to manage employee communication and training to ensure the benefit is well

understood?

� How to ensure that this benefit is best used by your employees to build wealth?

� How to manage employee transactions – including regulatory filings for insiders?

answer implementation, and

administrative questions…

We can help you


� How to manage employee transactions – including regulatory filings for insiders?

� What financing and reinvestment choices can you offer your employees?

� How to integrate ESOP and employee information across HR and accounting

systems?

� How to manage the compliance and management reporting?

� “Introduction to ESOPs”, trainings done before launch of your plan - and ongoing, as

required.

� Seminars on investing basics, financial planning and tax planning also offered

education and training for your

employees

We can help you


� Seminars on investing basics, financial planning and tax planning also offered

� One-to-one special sessions for executives

� Help with launch communications for existing employees (e.g., intranet, e-mail)

� Help with ongoing communications for newly-hired employees receiving grants

Plan design, implementation and management

Formulation of ESOP Scheme

Advisory on the mode of ESOP’s

Obtaining the Merchant Bankers and other mandated certificates

Advisory on the tax and accounting treatment

Sarthi’s ESOP Advisory Services- End to end

support


Advisory on the tax and accounting treatment

Obtaining regulatory approvals

Advisory with regard to treatment of ESOP’s at the time of IPO

Fair Valuation of Shares

Employee transaction support and financing

Financial planning and advice; Specialized service to meet employee's needs

HAPPY TO HELP….

SARTHI CAPITAL ADVISORS PRIVATE LIMITED

Bridging the Gap


Corporate Headquarters:Mumbai159/11, Amar Brass Compound, Vidhya Nagari Marg,

Kalina, Santacruz(E), Mumbai-400098

Landline: (022) 26528671-72, Fax: (022) 26528673

Regional Office:New Delhi610, Deepali Building,

6th Floor, Nehru Place, New Delhi-110019

Landline: (011) 26419815-16, Fax: (011) 26419818

Disclaimer

All data and information is provided for informational purposes only and is not intended for any factual use. It should not be

considered as an offer of sale of services mentioned herein. Neither Sarthi Advisors nor any of its group company, directors, or

employs shall be liable for any of the data or content provided for any actions taken in reliance thereon.

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