You can now provide employees stock options and make it an effective employee rention strategy.
The grant of the option to purchase the shares
The agreement for the option to purchasethe shares
Creation of the master document for the ESOP
Companies manage and hire top talent with ESOP (Employee Stock Option Plan)!
It is an employee benefits scheme under which the company encourages the employees to acquire ownership in the form of shares at a predetermined rate. Usually, companies issue ESOP to employees to make them stay with their organization for a long time. It motivates the employees to perform better and offer their loyalty to the company.
Suppose an employee receives 400 shares. On completion of every 1 year, 100 shares will be vested. The valuation of the shares increases with the valuation of the company. This also keeps a check on the attrition rate.
Attract Top Talent
You may not be able to match their current salary, but an offer of shares in your company will be enough to attract the best talent.
The better your business performs, the better your most talented employees will get paid. There's no better way to motivate them.
Keep Them Longer
The employees to whom shares have been allocated are almost certain to complete the four to five years you have defined as vesting period.
According to the IRS (Indian Revenue Service), the maximum age an employer can impose to be eligible for an ESOP is 21. Moreover, he/she must be eligible for ESOP in the year of joining the company. An employer can restrict eligibility to employees with two years of service but only if the plan has immediate vesting.
Draft The ESOP Rules
Your ESOP rules set out the terms that apply to all options granted under the plan, including the process for granting options, how and when employees can exercise their options, and what happens to the options on an exit event, or if an employee leaves. The document will include the following schedules:
Approve The Rules And The Option Pool
Once you are satisfied with the ESOP rules, your directors and shareholders will need to sign some corporate approval documents to adopt the ESOP rules and set up your option pool.
Board And Shareholder Approval
There are some resolutions which include:
Shareholder Waivers And Consents
Your constitution and shareholder’s agreement may include pre-emptive rights on the issue of new shares. If this is the case, these shareholders with preemptive rights will need to sign a waiver in respect of any options granted the ESOP.
Prepare Your Directors’ Resolutions:
Each time you want to grant options, you should ask your corporate secretary to prepare a new set of directors resolutions in writing, approving the grant of options to a specific recipient.
Send Each Recipient Their Grant Letter:
Update Your Register Option
Internally, you should also be keeping an option register, which is a record of all the options the company has granted, the vesting schedules, expiry dates, and exercise dates.
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Oyo’s ESOP Balance Increases by Rs. 1054 Crores
September 28, 2020
With the significance of Employee Stock Options (ESOP) increasing within the startup community, more and more organisations are increasing their ESOP pools on behalf of their employees.
As a result, Oyo has added 2700 shares to its existing ESOP pool, increasing it by Rs, 1054 crores, bringing the Oyo’s ESOP pool to a total value of Rs 4,304.5 crores.