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SEBI’s New ESOP Based Benefits For Employees

By 17/09/2021April 19th, 2022No Comments
esop benefits for employees

SEBI’s Employee Stock Ownership Plan – New ESOP Benefits For Employees

SEBI’s Issue of ESOP  Regulations in 2002 and SEBI’s Share Based Employee Benefit 2014 were effectively notified in 2002 and 2014 respectively.

It is to be noted that the Sweat Equity regulations had emphatically provided an elaborate efficient framework for the issuance of Sweat Equity shares by various listed companies.

new esop benefits for employees

On the other hand, the SBEB Regulations introduced the framework to regulate Employee Stock Option Scheme. This also led to the introduction of other share-based employee benefits for employees and the Employee Stock Purchase Scheme benefits.

With various recommendations and suggestions from the stakeholders, the SEBI constituted an Expert group to give recommendations in order to further streamline the provisions of these regulations.

The recommendations from the Expert Group made several emphatic and significant policy recommendations which included effectively combining both the regulations. These regulations combined were the Sweat equity regulations and the SBEB regulations.

This led SEBI to present the proposal to effectively merge and amend the Share Based Employee Benefits Regulations of 2014 and the Issue of Sweat Equity Regulations of 2002 into a single regulation. This single regulation came to be known as Share Based Employee Benefits and Sweat Equity Regulations of 2021.

The regulations that have been provided for regulation of all employee benefit schemes of the company and the sweat equity shares have been done to help employees to involve in dealing in shares, either directly or indirectly.

This has been emphatically done to effectively and significantly facilitate the smooth operation of such schemes by the employees and for their convenience. But this doesn’t mean that the regulations have been made less vigilant and stringent. In fact, the newer regulations have been promulgated keeping in mind to prevent any possible manipulation or any other matter connected with the Securities and Exchange Board of India.

sebi esop regulationsWhat Does The Law State?

It is to be noted that the provisions of these regulations will effectively apply to the employee stock purchase scheme, stock option scheme, stock appreciation rights, retirement benefits scheme, and many more. Moreover, the promulgated regulations shall effectively be applied to any company whose equity shares have been listed on a recognized stock exchange in India. It will be also applicable to companies that seek to effectively issue sweat equity shares or has a stipulated scheme for the direct or indirect benefit of employees.

The Employee Stock Ownership Plan Benefits

The changes had led the Securities and Exchange Board of India to significantly relax the minimum vesting period. This requirement was changed for the employee stock option plan in the event of the death of an employee of a company.

 as per various scrutinization and speculations, such regulations are effectively aimed at providing relief to the families of the deceased employees of the various listed companies. This has been done to provide assistance and benefits to the deceased employees’ families in times of the covid already has crippled the financial standing of many in India. As per the regulation, the recommended relaxation would effectively be available to all the employees who have deceased on or after April 01, 2020.

 to provide financial backing to various families in India, Sebi’s rules have effectively stated that there should be a minimum vesting period of at least one year. This has been done in accordance with employee stock options and stock appreciation rights. Also, as aforementioned, it also states that in the event of death of any employee in any listed company, the benefits of SAR or any other benefit that had been previously granted to the employee under a scheme will be vested in the legal heirs or nominees of the deceased employee.

employee stock ownership plan benefits Secondly, the newer SBEB Regulations will be effectively applied to all permanent employees of a company. Thus, the range of applicability has been widened. In the previous regulations, these employees also included employees of the holding company or the subsidiary of such a company that could have effectively been working in or outside of India.

Thus, it was a system where an employee that was in dual employment could have widely partaken in the share-based benefit scheme.

Thus, such a benefit could have been availed from either its subsidiary company or the holding company. However, in the recent amendments of the 2021 regulations, the scheme now only applies to employees who are exclusively working for a company.

Now the exclusive company here means that the employee could even be working exclusively for a group company of such company.

On the other hand, further amendment shows that independent directors will effectively not be eligible to participate under the equity-based benefit schemes. But several clarifications have been provided that non-executive directors would be effectively and significantly be eligible to participate in such schemes.

A series of other welcome changes that has been emphatically brought about by SEBI in its 2021 amendment law is that it has provided an increase in the time limit for appropriating inventory.

Under the recently amended regulations, if a company has effectively implemented a stock appreciation rights scheme that significantly involves purchasing shares from the market via trust, then the time limit has been increased from 1 financial year to 2 financial years.

employee stock option planThe benefit of the same is that this will significantly give companies sufficient time to identify employees. This identification of employees will include those employees to whom grants can be made while making the purchase of the shares of the company (via the trust) at an opportune time.

Thus, the short-term benefits of the amendment look quite promising but what the future holds is still a mystery.


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