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January 2015
Adjustments to outstanding ESOPs due to Corporate Actions
Corporate actions can be broadly defined as those actions which impact (or have the potential to impact) the value of shareholders holdings in a company. Corporate actions affect the underlying stock price and impact the value of stock options held by the employees. In order to neutralize this impact adjustment is required to the outstanding stock options. In this edition of ESOP vistas we will discuss the adjustments to outstanding employee stock options due to various corporate actions.

SEBI (Employee Stock Option Scheme and Employee Share Purchase Scheme) Guidelines, 1999 required the Compensation Committee to make a fair and reasonable adjustment in case of a corporate action such as right issue, bonus issue, merger, sale of division and others requiring Companies to make adjustments to the price and the number of outstanding stock options in a manner that total value of options remains same after the corporate action. SEBI guidelines emphasized on adoption of global best practices in this area and also to keep the vesting period and life of the options unaltered to preserve employee interest.
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