Korgaonkar K A
Recruitment/talent Acquisition, Career Counselling
Like Pon mentioned, the ESOP facility vary from Company to Company.
But your line "....shares can be sold at any point by the employee?" seems that you have the impression that the employee gets the shares [or stock, as it is called here]. NO......it means that the employee gets ALLOTTED to number of shares according to the Company policy......it refers to the allotment. ONLY when the allotment is done can the employee sell.
And this allotment usually takes place as per the period of employment.....say x shares after 1 year of service, y shares after 2 years.....and so on.
When the Company is not traded in any Stock Exchanges, the shares have to be sold off to the Company itself OR to any existing employee.....as per the Book value of the shares.
Hope this clarifies.
28th August 2015 From India, Hyderabad
I would appreciate if you can help me with more information on this, basically the situation is
An employee has a criteria of shares worth 1lac in the appointment letter,
so want to know weather it can be encashed or will it be credited after the employee leaves the company, or as TS said it will get accumulted & can be sold post the employee leaves the company.
28th August 2015 From India, Mumbai
I would answer you in different words.
ESOP means employee stock ownership plan. This plan is not as per any statute but it is governed by policy of the company.
According to this plan employees are with stock ownership option with no up-front cost to the employees.
Shares allotted in this scheme are part of remuneration of the employees for work performed by them. Shares allocated in this scheme are held in ESOP trust until the employee retires or leaves the service. The shares are sold on the retirement of an employee or on his leaving the service at the price that time.
The allotment of share under ESOP scheme has to to done as per Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines,1999.
Wipro, Reliance, Trident, Zensar, Ramco and many more companies have offered the shares under this scheme to retain the best talents.
28th August 2015 From India, Mumbai
While Googling after my above post, I found the said Guidelines 1999 as per attached file.
I further found that those Guidelines 1999 are now replaced with new regulations in 2014 to prohibit companies from buying/selling its own securities in the secondary market.
the New Regulations are covering the following new employee benefit schemes which deal in shares of the company:
- Stock Appreciation Rights Scheme (SARS);
- General Employee Benefits Scheme (GEBS);
- Retirement Benefit Scheme (RBS).
I am not an expert in this subject. You need to consult your CA / CS to get more information on it.
29th August 2015 From India, Mumbai
Korgaonkar has given you a detailed backgrounder of ESOP.
However, your line "........so want to know weather it can be encashed or will it be credited after the employee leaves the company...." seems to indicate that the ESOPs have been committed to this employee WITHOUT any base in terms of ESOP policy or guidelines being made by the Company. If the ESOP Policy is in place, the answer to your query is necessarily a part of the Policy for sure.
But if the ESOPs have been allotted without any policy framework in place, that's a sure-fire way of inviting legal trouble.
If you haven't found your answer in Korgaonkar's responses, pl give more details about the issue/situation.....so that the members can give clear actionable suggestions.
Also, more than established Companies, ESOP is most often used by Startups that are scaling-up, since they are not hindered by many of the regulations that established Companies have to adhere to.
29th August 2015 From India, Hyderabad
Nowadays, even some reputed organations are offering the shares in the joining stage itself under ESOP with strings attached (min lock-in period) and reflect such share values in the CTC structure in order to inflate the CTC. Employees who leave before the expiry of such lock-in period are bound to lose those shares.
Some companies charge nominally for the shares allotted under ESOP. In such scenario, either the lock-in period is less or NIL. L&T does this way. In those companies, the shares are transferred in the name of employees immediately after the expiry of lock-in period or from the day one of allotment.
29th August 2015 From India, Lucknow
But bear in mind that if you leave the organisation in the specified period, then you will have to pay to the company as per the prevailing market rate.
Further while allotment of shares, you must pay 30% of the cost of benefit you got as TDS (Please refer FBT).
29th August 2015 From India, Kumbakonam
The foregoing discussion is giving you some pointers for the ESOP.
Please note that it is not just the job of HR. It will involve your Legal Manager and Company Secretary also.
It has some rules and regulations that have to be followed. The terms and conditions of allotment, lock-in, sale, etc are a part of the plan that is prepared as per the regulations.
You need to consult a professional for the same as any non-compliance shall entail legal action.
Please feel free to connect with us if you need guidance on the same and our experts will help you in the matter.
Vice President - Operations
2nd September 2015 From India, New Delhi