To make Esops transparent, Sebi bars listed entities from framing employee benefit schemes involving acquisition of own securities from secondary mkt
To ensure greater transparency in the Employees’ Stock Option Option Scheme (Esop), the Securities and Exchange Board of India (Sebi) has come out with an amendment to the Sebi (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, and a consequent amendment to the Equity Listing Agreement as well.
The market regulator says that some listed companies have Esop schemes where an Employees’ Welfare Trust (EWT) is set up, which deals in the company’s own shares in the secondary market for issuance to the employees.
This route, it says, is used for inflating, depressing or causing fluctuation in the price of the securities by engaging in fraudulent and unfair trade practices. Sebi has now prohibited listed entities from framing any employee benefit schemes involving acquisition of own securities from the secondary market.
Listed companies are required to furnish details about the schemes to the stock exchanges within a month. So, according to the new norms, EWT will not be allowed to acquire any shares from the secondary market and companies can only issue fresh shares, for being transferred to the employees, as and when they exercise the options vested to them.
Companies, which have already framed and implemented their Esop policy, will be required to inform the details of their schemes to stock exchanges within 30 days of the circular if they are not in accordance with the Sebi guidelines. They will also be required to align any existing employee benefit schemes with the new Sebi ESOS and ESPS guidelines on or before June 30, 2013.
Analysts say the move is aimed at preventing possible manipulation in trading of shares by companies.
Parizad Sirwalla, partner at KPMG, says with this amendment, many companies may have to take a relook at their existing Esop schemes and become compliant with the revised Esop guidelines within the prescribed time-frame. “Companies and respective employees will also need to assess the tax implications under the proposed amendments. It is important to note that companies using this route with bona fide intent of providing benefit to employees, without any impact on the promoter group shareholding, are likely to face challenges,” she says.
A stock option plan gives an employee a right to purchase the company’s shares some time in the future at a pre-determined price. In