The legal regime pertaining to the grant of employee stock options (ESOPs) and employee share purchases (ESPSs) has been undergoing some change in recent years, particularly for those that are implemented through a trust established by a company for this purpose. In August 2012, SEBI announced its decision requiring all listed companies to frame employee benefit schemes only in accordance with the SEBI (ESOP and ESPS) Guidelines, 1999 and set out a specified timeframe for compliance. Moreover, such schemes would be confined only to the primary markets and they will be restrained from acquiring shares from the secondary markets for the purpose of grant of ESOPs or ESPSs. The rationale for this approach was discussed in an earlier post.
SEBI had announced that the new regime would have to be given effect to by June 30, 2013, which was extended to December 31, 2013 due to representations received by SEBI. It appears that SEBI has received further feedback regarding the stringency of this restrictive regime, and has sought to reconsider some of its approaches. Towards that end, it yesterday put out a discussion paper on “Review of guidelines governing stock related employee benefit schemes”. It has raised a series of questions on which feedback is sought by December 5, 2013.
The discussion paper focuses on two key aspects. First, it seeks to reintroduce the ability of employee trusts to acquire shares in the secondary markets in order to grant ESOPs and ESPSs to employees. Second, it also seeks to regulate other kinds of employee benefit schemes that relate to shares of a company. In doing so, the proposal seems to be to overhaul the existing SEBI (ESOP and ESPS) Guidelines, 1999 and also to convert them into regulations.
The discussion paper contains a summary of the efforts:
7. It was felt that secondary market acquisitions by Trusts being an internationally accepted practice should be considered subject to necessary safeguards to prevent misuse. It was also noted that secondary market acquisitions allow companies to grant options to employees without having to dilute their existing share capital. Further, it was also recognized that there are many kinds of employee benefit schemes involving own securities which being outside the purview of extant ESOS Guidelines are unregulated. There is also a need to provide for a suitable regulatory framework for such kind of schemes.
SEBI’s discussion paper contains a set of detailed questions on which feedback has been sought. The questions seem to have been prepared after due thought and consideration, and are a useful method of obtaining feedback from the various stakeholders.