This is a scheme through which a company encourages
employee’s participation in the business of a company. Under this scheme
company offers certain shares from the new issue to the whole time directors,
officers or employees of the company. The company offers the shares at a
pre-determined price which is usually less than the price offered to general
public. The ESOS must be approved by
passing a special resolution in the general meeting. This scheme is open to all
permanent employees. However, the option granted to employee is
non-transferable.
This scheme is useful to those companies whose
business activity depends upon the talents, skills and knowledge of employees
such as software companies, mechanical production etc.
As per SEBI guidelines
'employee' for the purpose means:
a) A permanent employee of the company working
in India or out of India or
b) A director of the company.
An employee as defined in sub clause (a) or (b) may be
of a subsidiary in India or out of India or of a holding company of the
company.
The other guidelines for
employees stock option scheme are as follows:
1.
The
company must constitute a compensation committee for administration and
superintendence of the ESOS.
2.
The
issue of ESOS should be approved by shareholders by passing a special
resolution.
3.
ESOS
would be open to all permanent employees, officers and directors of the
company.
4.
Option
granted to an employee shall not be transferable to any person.
5.
Option
granted can't be pledged (it's not a promise), hypothecated or mortgaged.
6.
In
the event of death, option granted to an employee shall vest in his or legal
successor or employee.
