Esop Advisory Services

THE C3 MODEL

Conceptualization

Equity compensation has a lot to do with the corporate philosophy. What are the strategies for achieving corporate objectives and where and how does equity compensation fit in to execute those strategies? We work with the compensation committee and senior management to identify these linkages and conceptualization contours of the Plan.

Consummation

On receiving a go-ahead from the compensation committee and senior management the hi-level framework is drilled down to finer aspects of Plan design. Company specific expectations, industry bench-marking and best practices are embedded into the Plan. This is followed by drafting the Plan document along with necessary shareholder and Board resolutions. In case the Plan is to be implemented through the Trust route, we also create a Trust to manage the Plan.

Communication

The concept of ESOP goes much beyond being a tool of monetary incentivization. For the employee to get a sense of ownership and belonging to the company, it is imperative they appreciate the value and benefits of their options. We conduct interactive sessions with the employees to educate them on what they possess in the form of ESOP. This lends transparency as well as builds up mutual trust.

REVIEW OF ESOP SCHEMES AND GRANT PRACTICES

Reviewing of Plan is essential for you to see which goals have been accomplished, whether changes need to be made and what new direction your company might want to take. This may arise due to the need for making a New grant, Limitation to expand the Equity pool, High burn rate, Evaluation of alternative structures, Regulatory changes, Mergers and Acquisitions, Public Listing of the Company, Correction of past inconsistencies and many others.

Grants Practices – Benchmark and Bring Plan in Line with Strategic Goals and Objectives

We review your existing grant practices and processes in order to benchmark with the relevant industry best practice. We analyze scheme parameters with a special reference to coverage, individual quantum, pricing of options, grant frequency, vesting conditions and schedule and ESOP pool size, in light of market trends and suggest grant parameters to make future grants more attractive for Plan participants. You can also call upon us for guidance on options outstanding with separated employees and existing employees in order to deal with the challenges of minority shareholding – pros and cons, associated costs, Tax implications after due diligence and making a recommendation.

Legal Compliances – Review and Modification of Plan Documentation to Ensure Compliance

We review existing ESOP schemes, grant letters, past compliances, enabling resolutions, employee communications, statutory filings to advise on any shortfall in legal compliances under applicable laws, and suggest modification in schemes to bring it in line with the company’s objectives. Privately held unlisted companies in particular, rely on our guidance on safeguards to be used in their ESOP scheme. We also help you with scheme modifications to render greater efficacy.

Employee Communication – Employees Need to Know the Changes which Affects Them

We facilitate employee communication, FAQ, modification in grant letter/surrender letter/letter of undertaking for obtaining consent from Plan participants in regard of existing grants to enable modifications.

ESOP Funding and Cashless Exercise

We facilitate your employee stock option program by offering funding and cashless exercise to employees who need them. You may want this service specially if there are many employees who have liquidity constraints or are non-resident and don’t have direct access to capital market.

In order to make your ESOP fluid and efficient, ESOP Direct helps Plan holders with funding to pay for exercise and perquisite Tax through My ESOPs platform. We have integrated this unique online functionality to help them identify multiple funding opportunities extended by different fund houses and also get guidance in executing the transaction.

ZERO C – CASHLESS EXERCISE

Very often employees are constrained from exercising the options because they do not have funds to pay for the exercise price and perquisite tax, loans may not always be convenient.

In yet another pioneering effort, we have designed ZERO C, India’s first Cashless methodology, duly vetted by legal experts and approved by the regulators.

Embedded in My ESOPs, Zero C allows employees to exercise their options without bothering to arrange for funds.

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ESOP Financials

Valuations Simplified , as a company you would always want to ensure that cost associated with your plan is properly estimated and accounted for , the accounting value is derived through the use of option pricing model which is based on inputs used under various assumptions. ESOP Direct help you in the valuation of your Option, its Accounting along with required compliance and disclosures as per Indian GAAP, IND AS, IFRS, US GAAP, FAS 123, SFRS and others standards established by applicable agencies.

ESOP VALUATION

Option Valuation

As a company you would always want to ensure that the cost associated with your Plan is properly estimated and accounted for. The accounting value is derived through the use of option pricing model which is based on inputs used under various assumptions. Correct valuation depends greatly on combining industry knowledge with expertise. ESOP Direct will help you with considering appropriate variables following the guidance and standards applicable to the company.

Accounting Treatment

– Evaluating employee compensation cost under intrinsic and fair value
– Amortization as per IGAAP or other standards
– Track subsidiary/ SBU information for tracking transfer cases and allocation of cost to relevant subsidiaries/SBUs

Transition to IFRS

– Calculating impact due to change in GAAP
– Analysis of alternative valuation models
– Impact of Plan conditions on future accounting cost

Reporting and Disclosures

– Automated disclosures as per IGAAP
– Employee level costs to enable cross charge and reporting at division level.

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FINANCIALS SERVICES

We do share valuation of unlisted companies essential to arrive at fair market price of shares at the time of grant of options for determination of exercise price of options (at market price or discount), it forms the basis for computation and booking of expenditure under intrinsic value or fair value method.
We also do share valuation required at the time of exercise of options of an unlisted company for calculation of perquisite Tax under Income Tax rules.
Financial Services are provided through our wholly owned subsidiary KP Capital Advisors Pvt Ltd registered with SEBI as CAT 1 Merchant Banker.

We would be happy to be of assistance to you.