Skip to main content

SEBI Allows Repricing of ESOP

Market Regulator SEBI Allows Repricing Of ESOP, this is due to market conditions as Exercise Price Becomes Less Than Market Price making ESOP less attractive.


THE bloodbath in the stock market has forced some firms to restructure their employee stock option programmes (ESOP) to assuage employees who are seeing a large portion of their ‘wealth’ disappear. Thanks to the market correction early this year, a number of Esop schemes have become redundant or gone “underwater”. This means the current market price of the stock has fallen below the Esop exercise price.


This is true of most firms that issued Esops over the past one-and-half years when the markets were high and bullish. There are many firms which started Esops last year, particularly those which got listed in 2007. All firms who have a vesting period of one year would either have to reprice the options or see it as a worthless option at the hand of the employee which won’t be exercised.


Employees who got Esops before the market crash at the then prevailing market prices have seen a significant erosion in the value of their options. This places them on an inequitable ground compared to employees who are getting Esops priced at currently depressed share prices, as they would get to exercise their Esops at a lower price. Companies in such a situation are considering repricing of Esops issued earlier.


So far only a handful of firms have resorted to repricing though. DTH firm Dishtv, for example, last week approved a proposal to reprice the stock options at Rs 36.10, which have already been granted but not yet exercised. In August 2007, the firm had approved its Esop Scheme 2007, where it planned to grant 30.7 lakh options to 43 employees at a price of Rs 75.2 per share. In April this year it approved the grant of 1.84 lakh options at a price of Rs 63.95. However, the current price of Rs 39.05 makes all these options redundant.


Sometimes repricing may be required if the management feels that the options were granted at a time when the valuation was unrealistically high, in which case its more of a correction exercise.


He, however, warns that repricing is a double-edged sword. If done during usual market dips, it may signal insecurity and lack of confidence in the future growth trajectory on the part of the management, which can send out wrong signals to their people. It can create wrong expectations in the minds of the employee that the firm will continue to do so whenever the prices are not favourable. This defeats the very purpose of a stock option, which is intended to reward only if the market valuations are rewarding, and is not generally meant to be guaranteed profit.


Market regulator Sebi allows repricing of options if the exercise price becomes less than the market price. Of course, options are underwater not just in India. According to New York-based compensation consultancy Steven Hall & Partners, as of June end as much as 40.3% of Fortune 500 firms’ stock options were out of money by an average of 34.5%.

Popular posts from this blog

Real Returns in Investing

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Real Returns in Investing     A Anil Singh (name changed), 44, works with a private company and believes in investing his entire savings in fixed deposits. His financials from the year 2000 till date is given in the table. Anil's savings in FDs gave him an average return of around 8%. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 49.80 lakh. The value of his investment today is around Rs 66.71 lakh. Naveen Singh (name changed), 44, works in a similar profile like Anil. However his expenses were on the higher side. His financials are as in the table. Naveen invested only in equities. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 38.40 lakh. The v...

Budget 2014 Highlights for Saving

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

ICICI Prudential MIP 25 - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential MIP 25     (CRISIL Rank 2)   This scheme was launched March 2004. Please see the chart below for the one, two, three and five years annualized returns from this scheme. The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 24% equity, 72% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.   For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mai...

Franklin India Smaller Companies Fund - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Franklin India Smaller Companies Fund   While the universe of small-cap stocks in India is vast, there are very few equity funds which take on the task of sifting through this space for good long-term bets. Franklin India Smaller Companies Fund has managed this with aplomb. What we like about this fund is its significant out-performance of its category and benchmark over the last four years, and its ability to moderate portfolio risk despite investing in the riskiest segment of the equity market. This fund's stock selection strategy, like that of Franklin India Prima Fund is focused on finding companies that generate positive cash flows across business cycles. High return on investment and manageable leverage are also filtering criteria. Says R. Janakiraman, fund ma...

How to open a Capital Gains Account?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to open a Capital Gains Account? You can open a capital gains account in an authorized bank. The Government has notified 28 banks which can open the Capital Gains Account on behalf of the Government. You have to apply for opening the account by filling out the required application form (Form A) and submit proof of address, PAN card and photograph. You cannot withdraw funds from a capital gains account using a cheque book or ATM, like you do in your normal savings bank account. There are procedures to be followed to withdraw funds from the capital gains account. Investment in Specified Bonds Section 54EC of Income Act provide that if the seller invests whole or part of capital gains arising from the sale of asset in specified Capital Gains, within a period of six months of the ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now