SEBI benefits package for listed companies


The Securities and Exchange Board of India (“SEBI“), in its notification dated 13 August 2021, introduced the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations 2021 (“Rules 2021“)1. This was after an expert panel, formed to merge the 2014 SEBI (Share Based Employee Benefits) Rules and the 2002 SEBI (Issue of Sweat Equity) Rules into the 2021 Rules, recommended various changes to the rules. previous.2.

As the application of the 2021 Regulations is limited to companies listed on a recognized Indian stock exchange, unlisted companies continue to be regulated under the Companies Act 2013 (“Law“). The 2021 Regulations apply to companies seeking to issue Equity Shares or which have a scheme which is set up/funded/guaranteed/controlled/operated by the Company or any other company in its group which: (a) provides a direct/indirect benefit to its employees; and (b) involves the direct/indirect purchase/subscription of the company’s securities3.

The 2021 Regulations have a broad scope, encompassing a wide range of regimes from which companies can choose4. A brief description of each mechanism available to companies to distribute benefits among their employees is as follows:

  1. Employee Stock Option Plans (“ESOS”): An ESOS is a device by which a company grants directly (or through a trust) stock options to its employees5. Such a plan must be accompanied by the information specified in the 2021 Regulations, duly provided to the potential beneficiaries of the option6. A company granting options under an ESOS is free to determine the price to be paid by an employee exercising said options (in accordance with the accounting rules specified in the 2021 Regulations)seven. ESOS must have a vesting period of at least one year; and an employee to whom such an option has been granted is not free to exercise the rights and enjoy the benefits available to an ordinary shareholder until the shares are finally issued upon exercise of the option8.
  1. Employee Stock Purchase Program (“ESPS”): An ESPS is a plan where the company can offer shares to its employees (in the context of a public issue or not) or through a trust (where said trust can acquire the shares for the purposes of the plan )9. The company may determine the price of shares to be issued under an ESPS (in accordance with the accounting principles specified in the 2021 Regulations)ten. Although shares issued under an ESPS must also be blocked for a minimum period of one year, if the ESPS is part of a public share issue (and employees are likely to purchase the shares at the same price as the public issue), the shares issued to employees within the framework of the ESPS cannot be subject to any conservation11.
  1. Stock Appreciation Rights Plan (“SAR Plan”): SAR Scheme is intended to distribute the benefits of the increase/appreciation in the value of the shares of the company among its employees. An employee who is granted a right to stock appreciation would be entitled to receive appreciation for a specified number of shares of the company and could receive settlement of such appreciation through cash payments/ company shares12. However, an employee who holds stock appreciation rights under such an SAR program is not entitled to receive the benefits available to a shareholder by virtue of the rights granted to him.13.
  1. General Benefits Scheme (“GEBS”): GEBS is a type of plan of a company that trades in shares of the company (or its listed holding company) for a specific purpose of employee welfare (i.e. healthcare benefits , hospital care benefits, sickness benefits, etc.)14. For GEBS purposes, such shares may not exceed 10% (ten percent) of the book value/fair value/market value of the total fund assets (whichever is lower), as appears in its latest balance sheet.15.
  1. Retirement Scheme (“RBS”): RBS is a scheme of a company that trades in shares of the company (or that of its listed holding company) created for the purpose of providing retirement benefits to employees (harmonised with retirement benefits based on applicable laws). force in India)16. For RBS purposes, such shares may not exceed 10% (ten percent) of the book value/fair value/market value of the total plan assets (whichever is lower), as appears in its latest balance sheet.17.
  1. Sweat Actions: Sweat Equity shares are shares of a company, issued at a discount/for consideration (non-cash) that can be given to employees to contribute their expertise or add significant value to the company18. These shares must be issued to employees in accordance with section 54 of the Act. However, a company may only issue equity shares up to 15% (fifteen percent) of the existing annual paid-up share capital; and the issue of equity shares in the company shall not exceed 25% (twenty five percent) of the paid up share capital of the company at any time19.

The 2021 Regulations, significantly simplified by the expert panel report, continue to be a solid basis for the share-related benefits provided to employees by companies, in addition to their remuneration. The various options outlined above provide companies with the flexibility to manage their employee benefits in line with their business objectives and encourage value addition in a diverse enough manner to meet the ever-changing demands of India Inc.


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