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Employee Equity Incentive (ESOPs)

Employee Equity Incentive (ESOPs)

To attract and retain competent professionals is a challenging task faced by many organisations. Besides cash rewards, it is important for organisations to make their employees believe that their personal growth is linked to the growth of the organisation. Employee Stock Option Plans (ESOPs) is one of the important tools to achieve this objective. The feeling of ownership can do wonders, especially in case of employees who are thinking of a long-term career with the organisation.

In recent times, ESOPs have been used effectively to attract, retain, motivate and compensate employees.

ESOP is an employee benefit plan under which an employee has the right to acquire shares at a discounted value without any underlying obligation to do so.

Any ESOP should meet the tax and regulatory compliance requirements. This includes devising an appropriate stock option plan, ensuring that the ESOP is compliant with the current provisions of income tax, company law, exchange control regulations, Securities and Exchange Board of India (SEBI) Act, the regulations thereunder, etc. The issues need to be specifically addressed wherein stock options of an overseas parent company are being given to the employees of the Indian subsidiary/office or where stock options of an Indian company are given to the employees of an overseas subsidiary/office.

It is important to determine that ESOPs are attractive for employees, simple to understand and administer and also conveys the underlying message of the employer. In recent times, accounting implications of issuing ESOPs have undergone substantial changes and has become a critical factor in the decision-making process.

Appropriate planning, a focussed approach and assistance during the planning and implementation stage can help avoid compliance defaults and facilitate putting a tax efficient methodology in place.

Key service offerings: 

Our team provides client organisations with a suite of service offerings with regard to tax and regulatory compliances for employee equity incentive schemes. These include:

  • Advise on selection of an appropriate equity linked incentive plan which may be in the form of employee stock purchase plan, restrictive stock awards, stock appreciation rights, etc.
  • Assistance in formulating an ESOP
  • Review documents pertaining to ESOP from a tax and regulatory perspective
  • Advise with regard to implications of applicable Indian law and regulations
  • Address cross-border tax issues with the help of our international network
  • Advise on planning mechanisms, for example, the Trust route
  • Advise on the accounting implications  
  • Assistance in identifying required disclosure requirements 
  • Review assumptions required to be used for valuations


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