Employee Stock Option Schemes are the most commonly used form for employee ownership. The option granted under the plan confers a right but not an obligation on the employee. Stock options are subject to vesting, requiring continued service over a specified period of time. Upon vesting of options, employees can exercise the options to get shares, by paying the pre-determined exercise price.
Employee Stock Purchase Plans allow Employee to purchase Company’s shares, often at a discount from Fair Market Value. The terms of the Plan determines the tenure and price for possession of the Company’s shares by the Employees. Usually, ESPPs are being framed for offering shares as a part of public issues.
Under Restricted Stock Units Plan, an Employee is awarded with the right to receive shares on a pre-determined date subject to occurrence of a specified event or fulfillment of specified conditions. In such kind of incentive plans, the Employee becomes shareholder only upon occurrence of a specified event or fulfillment of specified conditions.
Although, SARs are not technically employee stock options, companies often use them in a like manner. SARs provide employees with cash payments equal to the appreciation of the company’s stock over a specified duration. Thus, unlike other options, SARs provide employees with equity upside without exposure to any downside.
Phantom stock is a form of long-term deferred compensation using the Company shares as the measuring device for calculating the value of the deferred compensation. It simulates the Company shares in everything except that does not represent true ownership. The Company simply credits these phantom shares on its books and as the value of the company shares rises and falls, so does the value of the phantom stock.
Ms. Mohini Varshenya
Partner & Head-ESOP Services
+91 11 40622231