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Silas Nalyanya
Someone kindly share with me a sample of a typical letter that you would issue to staff introducing them to the ESOP.
From Kenya, Nairobi
shameer.patka
5

hope the following link will help u
Employee Stock Ownership Plans Determination Letter Application Review Process

From India, Mumbai
Silas Nalyanya
Thanks Shameer. This will assist me. However, I would like a sample letter to employees of a company introducing them to an ESOP that the Company has just created. If you have please share with me. Much appreciated!
From Kenya, Nairobi
shameer.patka
5

SAMPLE ESOP PROPOSAL

Eligibility Criteria :

Prerequisites:

1. Employee should have worked with the company for a minimum of one year.

2. The employee should also be a confirmed employee.

3. The performance rating of the employee for the last one year should be "Exceptional"(L I) or "Very Good"(L2).

Those who satisfy the above mentioned prerequisites need to be further screened along these lines:

1. The employee should be in a key position in the company.

2. The employees who belong to the "must retain" category.

3. Consistently outstanding performance by the employee.

The decision to award stock options to the employee will be taken by the management council.

Note:

1. Employees who were prornised certain nurnber of shares at certain periods,at the time of their recruitment, in their offer letters are also eligible as per the terms laid out in their offer letters. In future if any employee is recruited and is offered stock option in the company on terms & conditions which are different then those given in this scheme, then the terms and conditions as given in his offer letter will apply to him and this ESOP scheme will not be applicable for him .

2. If there are employees who are confirmed and who have completed one year in the group but have not completed one year in the company, such employees will be eligible for ESOP. For the purpose of their performance eligibility , their current year performance in the company will be taken into account.

PERFORMANCE ELIGIBILITY MATRIX

This matrix is to be used to find out what performance level would make people at various levels eligible for the ESOP at various periods of time.

Assumption : The percentage of people in various performance levels would be as follows :

L1 -> TOP 25% OF EMPLOYEES.

L2 -> NEXT 45% OF EMPLOYEES.

LEVEL / YEAR 1ST. YEAR 2ND. YEAR 3RD. YEAR 4TH. YEAR 5TH. YEAR

V.P. / A.V.P. L1

25%

L1

25%

L1

25%

L1

25%

L1

25%



GM / DGM / SR.MGR L1 L2

25% 45%

L1 L2

25% 45%

L1 L2

25% 45%

L1 L2

25% 45%

L1

25%



MANAGERS L1 L2

25% 45%

L1 L2

25% 45%

L1 L2

25% 45%

L1 L2

25% 45%

L1

25%



EXECUTIVES L1 L2

25% 45%

L1 L2

25% 45%

L1 L2

25% 45%

L1

25%

L1

25%



NOTE :

1. The eligibility criteria is more relaxed in the beginning ( except for V.Ps & A.V.Ps).

2. For Sr. Managers, DGMs , GMs, Managers & Executives, the eligibility criteria gets tougher over years as the Company becomes more & more established.

MULTIPLYING FACTORS :

Performance Multiplying Factor (P)

Ll Performance(Top 25%) -> 1

L2 Performance (Next45%) -> 0.5

FOR OLD TIMERS

Time of joining the Co. Multiplying Factor (T)

0 - 3 Months of inception -> 1.3

3 - 6 Months of inception -> 1.2

6 - 12 Months of inception -> 1.1

12 months onwards -> 1.0

TIME FRAMES ( IST JANUARY 2000 OFFER LETTERS)

1 st January 2001 -> Right for one third of shares accrues

1 st January 2002 -> Right for one third of shares accrues

I st January 2003 -> Right for one third of shares accrues

We do not want a lock-in period inititally built into the scheme as the scheme is already spread over a period of 4 years and lock-in is inherent in it. We feel that any other lock-in provision will cause the scheme to lose its attraction to the employees.

ASSUMPTIONS :

Gift tax will not be applicable when the shares are transferred to the employee as the transfer will take place when the company will become a widely held company from a closely held company. No effect of right issue bonus issues that need to be reserved for the kitty has been taken into account. Penetration of ESOP would be 70% for categories other than VP/ AVP in the first year.

LEVEL NUMBER OF SHARES (3 Years Period)

V.P. / A.V.P. A

GM / DGM / Sr. Manager B

MANAGER C

EXECUTIVES D

CALCULATION TABLE :

TIME SINCE INCEPTION

____________________ LEVEL

0-3 MONTHS

3-6 MONTHS

6-12 MONTHS

AFTER12 MONTHS



V.P. / A.V.P.

L1 1.3 x A x1/3

L2 1.3 x A x1/3 x 2

1.2 x A x1/3

1.2 x A x1/3 x 2

1.1 x A x1/3 A / 3

A / 6



GM / DGM / Sr. Manager

L1 1.3 x B x1/3

L2 1.3 x B x1/3 x 2

1.2 x B x1/3

1.2 x B x1/3 x 2

1.1 x B x1/3

1.1 x B x 1/3 x 2

B / 3

B / 6



MANAGER

L1 1.3 x C x1/3

L2 1.3 x C x1/3 x 2

1.2 x C x1/3

1.2 x C x1/3 x 2

1.1 x C x1/3

1.1 x C x 1/3 x 2

C / 3

C / 6



EXECUTIVES

L1 1.3 x D x1/3

L2 1.3 x D x1/3 x 2

1.2 x D x1/3

1.2 x D x1/3 x 2

1.1 x D x1/3

1.1 x D x 1/3 x 2

D / 3

D / 6



The Operation Of the Scheme

1.. The offer letters will be issued by 1 st January, 2000. This will contain the number of shares the employee will get at various dates during the three year period.

2. If by January 1, 2000 , the employee is not eligible for ESOP , then he will be considered again in January 1, 2001 and so on. The employee who becomes eligible in 2003 will get his last instalment of shares in 2007.

3. The shares will be allotted to the employee via the offer letter for a block of 3 years and will be split into three installments.

4. The exact number of shares will be decided on the basis of last year's performance and the length of service from the inception of the company.

5. The shares will be given @ Rs 10/-(for example).

6. During the time the scheme is in operation, all the employees covered by this scheme will also be eligible to receive bonus shares if any. The bonus shares will be kept in an escrow and will be given to the employee only when the original lot of shares is transferred to him.

7. If there is a rights issue , the employee covered under the ESOP will be eligible to subscribe to the rights issue at the issue price. There will be no lock in period for such shares and the employee can sell these shares immediately.

8. The scheme will be applicable only if the employee remains in the same company or in any other company of the group. If an employees resigns from the company during the time he is covered by the scheme, he will

a.. Not get any share if he leaves before January 1, 2001

b. Will get 1/3 of his shares if he resigns after January I, 2001 but before January 1, 2002.

c. Will get 2/3 of his shares if resigns after January 1, 2002 but before January l, 2003.

The shares will be transferred to him after the lock in period.

From India, Mumbai
shameer.patka
5

you can also visit the following link
Form of Letter to Participants ESOP

From India, Mumbai
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