The
legal regime pertaining to the grant of employee stock options (ESOPs) and
employee share purchases (ESPSs) has been undergoing some change in recent years,
particularly for those that are implemented through a trust established by a
company for this purpose. In August 2012, SEBI announced its decision requiring
all listed companies to frame employee benefit schemes only in accordance with
the SEBI (ESOP and ESPS) Guidelines, 1999 and set out a specified timeframe for
compliance. Moreover, such schemes would be confined only to the primary
markets and they will be restrained from acquiring shares from the secondary
markets for the purpose of grant of ESOPs or ESPSs. The rationale for this
approach was discussed in an earlier
post.
legal regime pertaining to the grant of employee stock options (ESOPs) and
employee share purchases (ESPSs) has been undergoing some change in recent years,
particularly for those that are implemented through a trust established by a
company for this purpose. In August 2012, SEBI announced its decision requiring
all listed companies to frame employee benefit schemes only in accordance with
the SEBI (ESOP and ESPS) Guidelines, 1999 and set out a specified timeframe for
compliance. Moreover, such schemes would be confined only to the primary
markets and they will be restrained from acquiring shares from the secondary
markets for the purpose of grant of ESOPs or ESPSs. The rationale for this
approach was discussed in an earlier
post.
SEBI had
announced
that the new regime would have to be given effect to by June 30, 2013, which
was extended
to December 31, 2013 due to representations received by SEBI. It appears that
SEBI has received further feedback regarding the stringency of this restrictive
regime, and has sought to reconsider some of its approaches. Towards that end,
it yesterday put out a discussion
paper on “Review of guidelines governing stock related employee benefit
schemes”. It has raised a series of questions on which feedback is sought by
December 5, 2013.
announced
that the new regime would have to be given effect to by June 30, 2013, which
was extended
to December 31, 2013 due to representations received by SEBI. It appears that
SEBI has received further feedback regarding the stringency of this restrictive
regime, and has sought to reconsider some of its approaches. Towards that end,
it yesterday put out a discussion
paper on “Review of guidelines governing stock related employee benefit
schemes”. It has raised a series of questions on which feedback is sought by
December 5, 2013.
The
discussion paper focuses on two key aspects. First, it seeks to reintroduce the ability of employee trusts to
acquire shares in the secondary markets in order to grant ESOPs and ESPSs to
employees. Second, it also seeks to
regulate other kinds of employee benefit schemes that relate to shares of a
company. In doing so, the proposal seems to be to overhaul the existing SEBI
(ESOP and ESPS) Guidelines, 1999 and also to convert them into regulations.
discussion paper focuses on two key aspects. First, it seeks to reintroduce the ability of employee trusts to
acquire shares in the secondary markets in order to grant ESOPs and ESPSs to
employees. Second, it also seeks to
regulate other kinds of employee benefit schemes that relate to shares of a
company. In doing so, the proposal seems to be to overhaul the existing SEBI
(ESOP and ESPS) Guidelines, 1999 and also to convert them into regulations.
The
discussion paper contains a summary of the efforts:
discussion paper contains a summary of the efforts:
7. It was felt that secondary market
acquisitions by Trusts being an internationally accepted practice should be
considered subject to necessary safeguards to prevent misuse. It was also noted
that secondary market acquisitions allow companies to grant options to
employees without having to dilute their existing share capital. Further, it
was also recognized that there are many kinds of employee benefit schemes
involving own securities which being outside the purview of extant ESOS
Guidelines are unregulated. There is also a need to provide for a suitable
regulatory framework for such kind of schemes.
acquisitions by Trusts being an internationally accepted practice should be
considered subject to necessary safeguards to prevent misuse. It was also noted
that secondary market acquisitions allow companies to grant options to
employees without having to dilute their existing share capital. Further, it
was also recognized that there are many kinds of employee benefit schemes
involving own securities which being outside the purview of extant ESOS
Guidelines are unregulated. There is also a need to provide for a suitable
regulatory framework for such kind of schemes.
SEBI’s
discussion paper contains a set of detailed questions on which feedback has
been sought. The questions seem to have been prepared after due thought and
consideration, and are a useful method of obtaining feedback from the various
stakeholders.
discussion paper contains a set of detailed questions on which feedback has
been sought. The questions seem to have been prepared after due thought and
consideration, and are a useful method of obtaining feedback from the various
stakeholders.
Of course, ESOPs, ESPSs and other stock-based remuneration have lost
their spark in recent years (compared to about a decade ago), but SEBI’s effort
seems to be to at least create a conducive legal framework for the utilization of
the method to the extent the market commands their usage.