Sarthi Capital Advisors Private Limited

Bridging the Gaps

ESOP Advisory & Execution
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Privileged & Confidential
ESOP Advisory & Execution
Employee Stock
Based
Compensation Plan
Employee Stock
Option Plan (ESOP)
Basic Plan
Employee Share
Purchase Scheme
(ESPS)
Stock Based Compensation Plans
Basic ESOP Broad Framework
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Basic Plan
Restricted Stock
units
Phantom Stock
Stock
Appreciation
Rights
A Right, Choice, but not an Obligation
Each option converts into one or more Equity Shares
To buy the shares of the Company at a future date
At a price fixed today- the excise price
Excise Price remains fixed even if the market price /
benchmark value goes up in future
Employee would pay only if the market price / benchmark
value is attractive- no investment upfront
Basic ESOP Broad Framework
Market /
Value
Enhancement
To attract,
reward,
motivate, and
retain
Promote
Employee
ownership
Improve
financial
performance
of the Industry
Why ESOP The Rationale
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Value
Enhancement
pays, not the
company from
its cash kitty
motivate, and
retain
employees
especially at
start up and
growth stage
Employee
ownership
culture and
reduce
attrition rate
performance
of the
company,
ultimately
contributing
to the success
Industry
Trends
GRANT (Receives the right)
VESTING (Earns the right)
EXERCISE (Exercise the right)
SALE (Sells the share)
ESOP Illustration
ESOP Life Cycle and Wealth Creation
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Particulars Year-0 Year-1 Year-2 Year-3 Year-4 Total
FMV 100 150 225 300 400
Less: Excise Price 100 100 100 100
Benefit per Option 50 125 200 300
Total Benefit in the year 12,500 31,250 50,000 75,000 168,750
ESOP Illustration
1000 options are granted at time-0, and the price prevailing at time -0 is Rs. 100.
ESOPs are vested in the Year 1-4 equally (i.e. 25% each year)
Legal and Regulatory Framework
SEBI (Employees Stock option Scheme & Employee Stock Purchase Scheme) Guidelines,
1999
Depositories Law
Companies Act, 1956
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Accounting Standards / Norms
Foreign Exchange Management Act (FEMA), 1999 & Regulations issued there under
Income Tax Act, 1956
Department of Public Enterprises (DPE) Guidelines (Additional guidelines for PSUs)
Methods of ESOP
Creation of Trust
Creation of trust by appointing a
trustee to hold the shares/ options in
trust for employees who can
subscribe to the shares reserved at a
later date and at a pre-determined
price
Directly to Employees
Formulate a scheme of ESOP wherein an
option can be reserved in favor of employees
to subscribe to the shares of the company at
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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to subscribe to the shares of the company at
a future date and at a pre-determined price
ESOP Scheme Most important document in ESOP, a binding
contract between the company and employees
Quantum
-Attractive enough to create
Wealth
-Coverage of levels of
Employees
Vesting Period
-Time based or
Performance based
-Standardized/ Employee
to employee
Policy
-Time Tenure, (e.g.
quarterly, yearly)
-Eligibility for new and old
employees
Liquidity Options
Pricing
-Market Value
Impact of Corporate
Actions
Contours of a typical ESOP Scheme
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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-How the employee can
convert the shares so
allotted into cash
-Market Value
-Discount- less dilution
Actions
-Bonus/ Rights/ Splits, etc
Coverage
-Broad based or selective/
Subsidiary
Exercise
-Periodicity
-Pricing
-Issue / Allotment
We can help you
What are the objectives of the plan? (e.g. Employee ownership, performance
incentive, retention?)
How to manage dilution? (time-based or performance based or both, standard or
answer plan design questions
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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differentiated)
What is the optimal pricing strategy to balance expense and reward?
What are the legal and regulatory implications and requirements of your plan?
How will changes in the components of the plan impact its performance and impact
(sensitivity analysis)?
How to manage employee communication and training to ensure the benefit is well
understood?
How to ensure that this benefit is best used by your employees to build wealth?
How to manage employee transactions including regulatory filings for insiders?
answer implementation, and
administrative questions
We can help you
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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How to manage employee transactions including regulatory filings for insiders?
What financing and reinvestment choices can you offer your employees?
How to integrate ESOP and employee information across HR and accounting
systems?
How to manage the compliance and management reporting?
Introduction to ESOPs, trainings done before launch of your plan - and ongoing, as
required.
Seminars on investing basics, financial planning and tax planning also offered
education and training for your
employees
We can help you
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Seminars on investing basics, financial planning and tax planning also offered
One-to-one special sessions for executives
Help with launch communications for existing employees (e.g., intranet, e-mail)
Help with ongoing communications for newly-hired employees receiving grants
Plan design, implementation and management
Formulation of ESOP Scheme
Advisory on the mode of ESOPs
Obtaining the Merchant Bankers and other mandated certificates
Advisory on the tax and accounting treatment
Sarthis ESOP Advisory Services- End to end
support
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Advisory on the tax and accounting treatment
Obtaining regulatory approvals
Advisory with regard to treatment of ESOPs at the time of IPO
Fair Valuation of Shares
Employee transaction support and financing
Financial planning and advice; Specialized service to meet employee's needs
HAPPY TO HELP.
SARTHI CAPITAL ADVISORS PRIVATE LIMITED
Bridging the Gap
Sarthi Capital Advisors Pvt. Ltd. - A Sarthi Group Company
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Corporate Headquarters:
Mumbai
159/11, Amar Brass Compound, Vidhya Nagari Marg,
Kalina, Santacruz(E), Mumbai-400098
Landline: (022) 26528671-72, Fax: (022) 26528673
Regional Office:
NewDelhi
610, Deepali Building,
6
th
Floor, Nehru Place, NewDelhi-110019
Landline: (011) 26419815-16, Fax: (011) 26419818
Disclaimer
All data and information is provided for informational purposes only and is not intended for any factual use. It should not be
considered as an offer of sale of services mentioned herein. Neither Sarthi Advisors nor any of its group company, directors, or
employs shall be liable for any of the data or content provided for any actions taken in reliance thereon.