ESOPs To Incentivize & Increase Productivity of The Employees

Employee stock option plan

Definition

According to the Section-62 of the Companies Act, 2013 employee means-

• Permanent employee of the company.
• Director of the company except independent director.
• Employee of subsidiary and holding of a company.
• Except the person who is employee promoter and related to the group of promoters.

Applicability

• Listed company need to comply the Security Exchange Board of India (SEBI) regulations and Companies Act 2013.
• The companies which are unlisted they need to full-fill the conditions of Companies Act 2013.

Advantages of ESOP

• Stock option are provided by the company for the benefit of employees of company.
• It is kind of incentive which promote the hard work and give motivation to the employee.
• ESOP give retirement security to the employee which hold company to long period.
• Employees are not taxed on amount contributed by the employer to the ESOP.
• ESOP can be used to increase the new equity for the company.
• ESOP give benefit to both employer and employee and it makes positive impact to the company in profitability, productivity and performance of the company.
• ESOP is the attractive benefit to the employee and company.

According to the companies Act, 2013 followings are the conditions:-

• Company need to make explanatory statement which contain all the details about the ESOP and pass the resolution in the board meeting.
• Then company need to take the approval of the shareholders in the general meeting by passing the special resolution.
• There shall be a minimum period of one year between the grant of option and vesting of option.

1. Grant of option means right to acquire the number of shares of the company.
2. Vesting of option means the time period until you need to hold the stock option.

• The option grant to the employee which are not transferable to the other person.
• The board of director disclose the Director’s Report contain the details of ESOP during the year.
• Company maintain the register of ESOP in Form no. SH-7.