In an important development SEBI has approved the process for executing Cashless exercise of ESOPs in a recent informal guidance.   MORE
A detail analysis of this guidance is available in this issue below

The tax treatment of Employee Stock Options depends on the type of plan, its structure and the point at which the vesting or exercise of the option has taken place. MORE

Compensation committees can draft performance based vesting plans based on Total Shareholder Return (TSR).   MORE

The “True” cost of stock options   MORE

In a recent informal guidance issued to KPIT Cummins Infosystems Ltd., SEBI has given a formal approval to the company to implement cashless exercise for its ESOP holder employees. While the SEBI ESOP guidelines do specifically provide for the cashless route, companies were apprehensive about the exact route to be followed. In that sense this guidance will pave the way for companies who are keen to follow this route.
Cashless route is the most common mode followed by companies globally to enable employees to fund the exercise price and tax obligations when they exercise their stock options. Since most companies grant options at market price, the amount of money employees have to pay while exercising is substantial and often acts as a deterrent for exercise. Few employees also seek loans to pay for the obligations. Perquisite tax which has to be paid on exercise also adds to the funding requirement. Read to know more

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Vesting means the process by which the employee is given the right to apply for shares of the company against the options granted to him.

Vesting can be either time based or performance based or a combination of time and performance based vesting.

Time based vesting : Options vest as time lapses irrespective of the performance of the employee and/ or the company

Performance based vesting : Options vest only if specified performance criteria are met. For example performance conditions could be either related to individual performance, company performance (top line or bottom line), department performance, total shareholding return (Peer group benchmarking).