esop corporate presentation

Concept, Design & Approach

Employee Stock Options

Why ESOPs ?

¬ Link personal wealth creation to organizational wealth creation

¬ Attract and retain talent at the start-up / growth stage

¬ Reduction in cash costs - market pays not the company – can be especially important for start-up companies that are cash starved

¬ Promote employee ownership culture

¬ Industry practice

¬ When ??¬ Growth story is reasonably certain

¬ Exit / liquidity event reasonably certain / exists

T H E P R O V O C A T I O N

A must-do when on the threshold of growth

¬ Designing ESOP Schemes

¬ Review of existing ESOP Schemes

¬ ESOP Valuation & Accounting

¬ Advice on India-specific issues for International ESOP Schemes

¬ Corporate actions

¬ Internal marketplace

Consulting & Advisory Services

C O N S U L T I N G & A D V I S O R Y

3

The C3 model

¬ Conceptualization

¬ Consummation

¬ Communication

D E S I G N I N G A N E S O P S C H E M E

¬ Objective and Coverage

» A thank-you for past loyalty and performance

» Incentive to drive future value

» Promote employee ownership culture

¬ Quantum» Attractive enough to create “wealth”

¬ Coverage» Do I have enough equity ?

» Ok, I have enough equity – now what ?

» What are my objectives ?

¬ Pricing

» Fair market value – more dilution, no accounting charge

» Discount – less dilution, benefit buffer with accounting charge

» Is a discount called for ?

D E C I S I O N P O I N T S

Conceptualization

CORPORATE STRATEGY

ESOP

STRATEGY

¬ Dilution

» Broad based vs selective

» Equity or cash (phantom)

¬ 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

¬ Legal Structure» A holding co abroad with a sub in India

» Whether in the holding co or the sub ?

Conceptualization

D E C I S I O N P O I N T S

¬ Board / Compensatory Committee and Shareholders’ resolutions

¬ ESOP Scheme documentation

¬ ESOP Agreement

¬ Secretarial Manual

Consummation

C O N S U M M A T I O N

¬ Initial¬ Grant letters

¬ Notice of Option Grant

¬ ESOP Manual and FAQs

¬ Disclosure document as per SEBI Guidelines

¬ On-going¬ Financial performance

¬ Stock performance

¬ Future growth trajectory

¬ ESOP as a long-term instrument

Communication

C O M M U N I C A T I O N

Design Approach

¬ Phase I (Day 1)

¬ Initial discussion with the management to understand the

¬ business model and growth strategy

¬ objectives of the ESOP Scheme – attraction, retention, reward for

loyalty, reward for performance, etc – with the relative importance

¬ current compensation strategy and probable future policy

¬ Brief visit to various departments / Factory tour

¬ Phase II (Week 4)

¬ Collection of employee and financial information in specified

formats

¬ Analysis of information and preparation of a broad – level

framework

¬ Discussion of the broad – level framework with the management

and identify changes to be made

M E T H O D O L O G Y

Design Approach

¬ Phase III (Week 8)

¬ Incorporation of proposed changes

¬ Submission of the final framework – specific number of options per employee, exercise price, vesting schedule and proportion, vesting conditions, exercise period, separation rules, etc.

¬ Sign off on the final framework

¬ Phase IV (Week 10)

¬ Legal documentation¬ ESOP Scheme

¬ ESOP Agreement

¬ Board and shareholders’ resolutions

¬ Disclosure document as per SEBI Guidelines

¬ Secretarial Manual

¬ Communication pack¬ Grant letter

¬ Notice of grant

¬ ESOP FAQs

¬ Employee communication session

M E T H O D O L O G Y

Valuation & Accounting

I N D I A N G A A P, U S G A A P & I F R S 2

¬ Valuation of Employee Stock Options

¬ Accounting of Employee Stock Options

¬ Statutory Disclosures

¬ Calculation of Intrinsic value of options as per Indian GAAP

⌐ Calculation of Fair Value of options as per Indian GAAP,US GAAP (S

FAS 123R) and IFRS 2

⌐ Interaction with auditors

Frequency - Every Grant Date

V A L U A T I O N OF E M P L O Y E E S T O C K O P T I O N S


⌐ Computation of Compensation cost to be amortized over the vesting period in accordance with Indian, US GAAP & IFRS 2

⌐ Amortization of Compensation cost during each quarter

⌐ Financial year end adjustment of Compensation cost considering the resignations and other separations during the year

⌐ Interaction with auditors

Frequency - Quarterly and Yearly

A C C O U N T I N G O F E M P L O Y E E S T O C K O P T I O N S


¬ All statutory disclosures relating to ESOPs in accordance with

Indian, US GAAP, IFRS 2.

Frequency - Annually


A N N U A L D I S C L O S U R E S

P L A N M A N A G E M E N T

¬ Data Management

¬ Employee Satisfaction

» Online report to employees

» Grants

» Vesting

» Online Exercise

» Separation

» 24x7 access to individual ESOP data, vesting forecast & option

valuation

» Online Reports

» E-mail alerts prior to vesting, lapse of options, share price reaching a

target level

» Intimation on issue of shares

» E-mail help desk

Plan Management

Participants

Stock Option Management

ESOP Manager

Oracle / MS SQL, . Net

VB, Access

Intel based NT servers

Application

¬ Proprietary web application¬ conceptualized, developed and maintained in-house

¬ Hosted on our servers

¬ On-line access to employees globally

¬ Facilitates on-line exercise

¬ “What-if ” analysis for participants

¬ Management and Participant reporting

Client involvement

¬ Only for communicating

¬ Grant details

¬ Separations and cancellations

¬ Issue of shares

Our Managed Service Offering

P L A N M A N A G E M E N T

Plan Management

Focus

¬ The only specialised ESOP firm in India

¬ The only ESOP Administrators in India in the organized sector

¬ End to end solutions in stock-based compensation

¬ Holistic approach – HR, Legal and Accounting Perspective

Experience

¬ More than 200 mandates, domestic and overseas, for listed and unlisted companies

¬ Ability to structure and administer International plans

¬ Sector experience: Banking, Pharma, Manufacturing, Telecom, Software, Construction, Aviation

¬ Local administrators for UK/US plans

Why Us ?

O U R V A L U E P R O P O S I T I O N

Economies of Skill

¬ Knowledge of diverse practical problems faced by corporates post ESOP implementation

¬ Continuous value addition to clients based on practical knowledge

¬ Strong focus on Research and knowledge base

¬ Leads to economies of skill – improved service levels due to focus only on one area

Policy making

¬ Representation on the SEBI Committee for ESOPs

¬ Co - authored the Guidance Note for the ICAI

¬ Presence in global forums and conferences

¬ India Chapter leader for Global Equity Organization (GEO)

¬ Pioneering research and studies on the subject

Why Us ?


Lineage

¬ Parent company – Kirtane & Pandit, Chartered Accountants – over six

decades old

¬ KPIT Cummins Infosystems – one of the fastest growing listed software

company

¬ KP Group is 3800 people strong

Why Us ?


Our Clientele

IT / ITES BANKING / FIN. INST DIVERSIFIED

PHARMA OTHERS

Our Clientele

BANKING / FINANCIAL INSTITUTIONS

The Core Team

Leadership

Present responsibilities

Harshu Ghate is the co-founder and Managing Director of ESOP Direct. Apart from handling the overall management of the Company, Harshu devotes time on critical assignments on ESOP consulting, US GAAP and statutory compliance issues. Harshu heads the Research,Knowledge development and Branding efforts of the Company. He has conceived and developed the ESOP administration methodologies and software solutions for the first time in India. He also devotes time in conceptualizing new software solutions in the field of ESOP administration

Experience

Harshu has more than 18 years of post qualification experience in the area of Corporate Finance, Accounting and Financial management. He started his career in 1985 as a Partner with Kirtane & Pandit Chartered Accountants, a well known accounting firm. In 1991 he co founded the Investment Banking arm of the firm and headed it for 7 years. In 1999 he co founded ESOP Direct and continues to head it.

Harshu is very active in the policy making initiatives on ESOPs in India. He is a member of SEBI’s committee on ESOPs and is co authoring the Accounting Standard for Expensing ESOPs for the Institute of Chartered Accountants of India. He speaks regularly in national and International conferences on ESOPs and is the India chapter leader of Global Equity Organization ( a US based organization with over 1000 members all over the world).

Education

Harshu is a Fellow member of the Institute of Chartered Accountants of India (FCA) since 1985 and a licentiate member of the Institute of Company Secretaries of India since 1987. He is a Commerce graduate from Pune University.

Harshu Ghate

L E A D E R S H I P


Tarun Gulati is the Vice President and heads the day-to-day operations of the firm. He devotes most of his time

interacting with clients and developing stock-based compensation solutions specific to their requirements. He leads a

team of Chartered Accountants and MBAs who deliver ESOP Consulting and ESOP Management solutions to the clients.

He also tracks the developments in the field of stock-based compensation in India and in the international arena.

Experience

Before joining ESOP Direct, Tarun has worked with PricewaterhouseCoopers (PwC) in areas related to Corporate Law.

He has also worked with the Indian pet food venture (Brand Pedigree) of the Mars, Inc. group, the global confectionery

and pet food giant. He has authored articles on macroeconomics, international finance and stock markets in

newspapers and other journals.

Qualifications

Tarun is a qualified Company Secretary.

Tarun Gulati

L E A D E R S H I P


Prachi Worlikar is the Sr. Manager – Consulting and is responsible for ESOP Valuation and Accounting Services.

Experience

With her experience in Employee Stock Option Administration, Internal Audit & Finance, Prachi has been associated with various clients for Design, Implementation & Administration of Employee Stock Option Schemes in compliance with respective regulations. She has also developed & implemented Software product for Employee Stock Options Management , calculating Fair Value of Options in compliance with US GAAP (FAS 123(R)). In addition to this, she is also experienced in Review of Restatement of Indian Accounts under US GAAP.

Qualifications

Prachi is a Certified Public Accountant (CPA) from Massachusetts Society of Certified Public Accountants, USA as well as a Chartered Accountant (CA) from the Institute of Chartered Accountants of India, New Delhi. She has also completed Level - II of the Certified Equity Professional course.

Prachi Worlikar

L E A D E R S H I P

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