Stock based compensations design for startups

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    02-Dec-2014

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ESOPSare crucial assets tools to reward employees and retain them by providing sense of ownership. They are probably the most valuable contribution that Startups make to the lives of employees who suffer low salaries and long hours while working in new Companies.As an entrepreneur you should know, What are Employee Stock Option Plans (ESOPS)? Importance of Employee Stock Option Plans? Whom to issue ESOPS? How to issue ESOPS? What are the Cost & Criteria to issue Employee Stock Option Plans? Benefits of ESOPSand Dos and Donts?

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  • 1. STOCK BASED COMPENSATIONS for STARTUPS!! Cherian M J cherian@keynoteesop.com
  • 2. EMPLOYEE STOCK OPTIONS PLANS RREESSTTRRIICCTTEEDD SSTTOOCCKK UUNNIITTSS STOCK APPRECIATION RIGHTS cherian@keynoteesop.com
  • 3. EMPLOYEE STOCK PURCHASE PLAN RESTRICTED SSTTOOCCKK AAWWAARRDDSS cherian@keynoteesop.com
  • 4. SETTLED IINN EEQQUUIITTYY OORR CCAASSHH cherian@keynoteesop.com
  • 5. SETTLED IMMEDIATELY OORR IINN FFUUTTUURREE cherian@keynoteesop.com
  • 6. LIFE CYCLE VESTING SALE GRANT EXERCISE cherian@keynoteesop.com
  • 7. GRANT HOW MUCH DO I DILUTE? COVERAGE - WHO & HOW MANY? BENEFIT - WHAT IS THE MINIMUM BENEFIT? VALUE - WHAT IS YOUR DREAM? (THE EXPECTED UPSIDE) cherian@keynoteesop.com
  • 8. GRANT - OBJECTIVE PAST PERFORMANCE REWARD IN ANTICIPATION OF FFUUTTUURREE PPEERRFFOORRMMAANNCCEE JOINING BONUS cherian@keynoteesop.com
  • 9. GRANT - PRICE FAIR MARKET VALUE FFAACCEE VVAALLUUEE DISCOUNT TO FAIR MARKET VALUE (HIGHER ACCOUNTING CHARGE WITH DEEPER DISCOUNT) cherian@keynoteesop.com
  • 10. VESTING SERVICE PERIOD UNIFORM ACROSS THE BOARD DIFFERENT FOR DIFFERENT PEOPLE FRONT ENDED BACK ENDED UNIFORM OVER THE SERVICE PERIOD cherian@keynoteesop.com
  • 11. VESTING HOW DO YOU EARN THE BENEFIT? PASSAGE OF TIME PERFORMANCE OOFF TTHHEE IINNDDIIVVIIDDUUAALL PERFORMANCE OF THE COMPANY TOTAL INVESTOR RETURNS cherian@keynoteesop.com
  • 12. EXERCISE NEW PARTNERS!! LIQUIDITY OPTIONS: -- IINNIITTIIAALL PPUUBBLLIICC OOFFFFEERR?? - TRADE SALE? - BUY BACK? cherian@keynoteesop.com
  • 13. NEW PARTNERS PROTECT THEM!! ACCELERATE VESTING ON PROMOTER EXIT? TERMINATE WITHIN 1 YEAR FFRROOMM CCOORRPPOORRAATTEE ACTION? - ACCELERATE VESTING!! cherian@keynoteesop.com
  • 14. NEW PARTNERS DEAL BREAKERS?? EXERCISE ONLY ON A LIQUIDITY EVENT? cherian@keynoteesop.com
  • 15. DOCUMENT IT & COMMUNICATE! SHAREHOLDER APPROVALS BOARD APPROVALS PLAN DOCUMENT EMPLOYEE AGREEMENT TALK ABOUT THE PROGRESS & WEALTH! cherian@keynoteesop.com
  • 16. ACCOUNT FOR IT! THIS IS A FORM OF COMPENSATION, SO ACCOUNT FOR IT! - OPTION VALUATION (BLACK-SCHOLES OPTION PRICING) - DISCLOSURE IN NOTES TO ACCOUNTS cherian@keynoteesop.com
  • 17. REGULATORY NOTES PRIOR APPROVAL OF SHAREHOLDERS ONLY PERMANENT EMPLOYEES NO PROMOTERS NO INDEPENDENT DIRECTORS MINIMUM 1 YEAR FROM GRANT TO VESTING MINIMUM PRICE FACE VALUE cherian@keynoteesop.com
  • 18. TRUST ROUTE NOT UNLESS YOU WANT TO FFAACCIILLIITTAATTEE BBUUYYBBAACCKK cherian@keynoteesop.com
  • 19. REGULATIONS COMPANIES ACT, 2013 INCOME TAX ACT, 1961 GUIDANCE NOTE ON STOCK BASED COMPENSATIONS, ICAI RBI GUIDELINES SEBI (ESOS & ESPS) GUIDELINES, 1999 cherian@keynoteesop.com
  • 20. INCOME TAX TAX ON PERQUISITE VALUE GRANT: NO TAX VVEESSTTIINNGG:: NNOO TTAAXX EXERCISE: FMV AS ON EXERCISE EP = PERQUISITE (SALARY) cherian@keynoteesop.com
  • 21. INCOME TAX- CAPITAL GAINS SALE: SALE PRICE FMV AS ON EXERCISE == LLOONNGG// SSHHOORRTT TERM CAPITAL GAIN cherian@keynoteesop.com
  • 22. YOU MAY NOT CHANGE THE WORLD, BUT YOU CAN DEFINITELY CHANGE THE WWAAYY AA FFEEWW PPEEOOPPLLEE EXPERIENCE IT. cherian@keynoteesop.com
  • 23. THANK YOU CHERIAN M J cherian@keynoteesop.com