The Concept And Effectiveness Of Employee Stock Option Schemes In India

Hrishi Kapadia, BBA LL.B, MIT WPU School of Law, Pune

ABSTRACT

Employee Stock Options, often referred to as ESOPs, are a form of remuneration / compensation awarded to employees of a joint stock company, wherein the employee receives the right to purchase the shares of the company at a rate lower than the prevailing market rate, upon satisfying some criteria such as tenure of work. This system aims to merge employees into shareholders of the company thereby giving them an increased sense of commitment to the success of the company. Employee Stock Option Schemes / Plans are governed primarily by two legislations, the Companies Act, 2013 and the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. This paper shall explore the statutory and regulatory framework for the issuance and operations of such Employee Stock Option Schemes / Plans, dissecting the procedural aspects involved such as the eligibility criteria as well as the issuance, vesting, exercise and buyback of such options or the shares issued thereunder. The paper shall then analyse the benefits and effectiveness of this system of remuneration in India, in light of such plans effectuated by prominent companies in the market, in order to give a detailed insight into the concept of Employee Stock Options Schemes / Plans in India.

Keywords: Employee Loyalty, Employee Stock Options, ESOPs, Grant, SEBI, Vesting