INDIA Trends and Developments Contributed by: Pooja Ramchandani, Kriti Kaushik, Suruchi Kumar and Suryansh Gupta, Shardul Amarchand Mangaldas & Co.
adoption of ESOP schemes or any amendments to such incentives. These guidelines help sharehold - ers ensure that the extent and quantum of benefits under the schemes are not open-ended and do not vest unfettered power in the hands of the company or the compensation committee to alter the terms of the ESOP in a manner not clearly communicated to the shareholders. Therefore, while in a private company, considerable discretion rests with the board of directors to deter - mine the terms and conditions of ESOPs, specifical - ly, in respect of the selection of employees, exercise price, performance parameters, and conditions for vesting and exercise, in the case of an IPO-bound or listed company, stricter governance standards are observed. Some key aspects of these restrictions are that: • the grant of ESOPs should not be concentrated on a small group of employees and should be reason - ably distributed among the employees; • the exercise price fixed for the options should not be a deep discount relative to the market value of shares (whereas, in the case of private companies, ESOPs may often even be issued at the face value of shares); • there should be clarity in terms of the vesting con - ditions, and in cases where they are performance- based, there should be indicative parameters on which such performance will be assessed; • the ESOP pool should be fixed in a manner that does not lead to a high dilution for the sharehold - ers; and • the vesting and exercise periods should not be unreasonably long. Thus, prevalent industry benchmarks on aspects such as the pool size, exercise price, vesting period, condi - tions, etc should be allied with proxy advisory guide - lines to avoid unnecessary roadblocks at the time of approval. Another important consideration is to ensure trans - parency for the shareholders from a compliance as well as a governance standpoint. The disclosures required as part of the explanatory statement should be unambiguous and provide clarity on how the ESOP
will operate. The objective is to safeguard the public shareholders against excessive dilution and dispro - portionate grants to founders or key management personnel on terms that result in diminution of share - holder value. Recent trends indicate that the stock exchange regu - lator also prefers that the schemes are designed as a simple and traditional stock option plan without any creative provisions that would enhance flexibility in implementation or favour a selected set of employees. For instance, the regulator resists ESOPs that provide ambiguous performance benchmarks as part of their vesting conditions. The ability of the companies to liquidate ESOPs in cash in case of employee requests or corporate actions is also looked down upon by the regulator on the ground that it makes the ESOPs akin to a cash-settled stock appreciation right, which is not allowed to be carried over during the IPO process. The intention, again, is to have a scheme that is simple, transparent, fair and comparable across companies. In the IPO landscape, thus, the key is to design ESOPs that are simple and maintain a balanced approach between governance, shareholder interest and employers’ business while ensuring a defined benefit for the employees. A well-structured ESOP not only showcases the governance standards of the company but also ensures a long-term alignment between the company’s and the employees’ shared growth story. Redefining Diversity and Inclusion: The Legal Imperative for Digital Accessibility in India “We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly.” – Martin Luther King Jr. Article 21 of the Constitution of India enshrines the most elementary fundamental right of a person as the ‘right to life and personal liberty’, whether or not that person is a citizen of India. The boundaries of this fundamental right have been stretched time and again by the Hon’ble Supreme Court of India to encompass the ‘right to travel’, ‘right to privacy’, ‘right to dignified existence’, ‘right to be left alone’, ‘right to be forgot - ten’ and, most recently, ‘right to digital access’.
270 CHAMBERS.COM
Powered by FlippingBook