ESOPs Indian Scenario

In India context ESOPs were introduced in early 90's when Indian IT Companies started using ESOPs as an Incentive plans for its senior management. ESOP is significantly used in the IT Companies because in IT industry employees are the most important assets for these companies.

Around 43% of the IT companies have given ESOPs to more than 90% of the employees, and only 17% of the Non-IT companies have done so, out of which 75% of the ESOPs are given to the senior and middle management employees because apart from the willingness of the management to offer ESOPs, it is also the preference of the employees. While a worker employee in a manufacturing company would prefer a cash incentive to a stock option.

Legal Structure in India

Earlier, under Companies Act, 1956, ESOPs were governed by the provisions of Section 81 (1A) and SEBI (Employee Stock Option Scheme & Employee Stock Purchase Scheme) Guidelines, 1999. These legislatures were applicable for Public Listed Companies while all the other companies were bound to follow the Articles of the Company & Companies Act, 1956.
Now, with the promulgation of Companies Act, 2013, specific provisions for regulation of ESOPs have been framed by the lawmakers. As per the new Act, issue of Employee Stock Options is governed by the provisions of Section 62(1)(b) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital & Debenture) Rules, 2014, and SEBI (Employee Stock Option Scheme & Employee Stock Purchase Scheme) Guidelines, 1999.

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