SEBI issues new disclosure norms for ESOP schemes

Capital market regulator SEBI on Tuesday said the compensation committee of a company’s board should disclose the quantum of employee benefit scheme on an aggregate as well as employee count basis. Besides, the conditions under which stock options or other benefits would vest in employees or lapse in case of termination of employment for misconduct should also be clearly spelt out by the committee, said SEBI.

The committee should also define the period within which the employee may exercise the option or otherwise and the time limit for exercising in case of termination or resignation.

In a set of detailed guidelines unveiled on Tuesday, SEBI said the compensation committee would be responsible for formulating the terms and conditions of equity share-based employee benefits such as the employee stock option schemes, employee stock purchase schemes and retirement benefit schemes. Stock appreciation rights schemes and general employee benefit schemes are also included.

Stock appreciation right or SAR is a right given to an employee entitling him to receive appreciation for a specified number of shares of the company where the settlement of such appreciation is made either by way of cash or by shares of the company.

The committee also has to consider the right of an employee to exercise all the options or SARs, either at one go or in multiple times besides making adjustments to the entitlement with regard to the number of shares and exercise price arising out of corporate actions, such as rights issues, bonus issues, merger, sale of division and the like.

The adjustment in price and the number of options or shares should be such that the total value remains unaltered to the employee. SEBI mandated that the vesting period and the life of the options should be left unaltered as far as possible to protect the rights of the employees. Companies with employees stock purchase scheme (ESPS) have to provide details of the date of shareholders’ approval, number of shares issued and to whom, their price besides the lock-in period.

Companies also have to disclose information on all options granted in the three years prior to the IPO until they have either been exercised or have lapsed, SEBI said.

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