ESOPs
One of the ways a company can reward its employees is by granting them stock options (ESOPs). A stock option is just that – an option, or a choice – to buy shares. Your options give you the opportunity to buy your Company’s shares in the future at a price determined at the time of grant. If the stock price goes up, your options would be profitable. If the stock price goes down, then you simply don’t use your option – there’s no risk to you.
Stock Appreciation Rights settled in cash.
Employee will receive cash equal to the increase in the value of shares. I.e. Difference between the value of shares as on the date of vesting and as on the date of exercise shall be paid to the employee in cash on the date of the vesting.
Grant
The Compensation/Remuneration Committee decides the eligibility criteria of the employees based on their role and performance in the company. Depending on the criteria set by the Compensation/Remuneration Committee, your individual options eligibility is arrived at and options are granted. This is known as grant of options.
Grant Date
The date on which the company grants ESOPs (which would be converted into Shares) to its employee
Vesting
Vesting has two components – vesting percentage and vesting period. Vesting percentage refers to that portion of total options granted, which you will be eligible to exercise. Vesting period is the period on the completion of which the said portion can be exercised.
Exercise
The activity of converting the options granted to you into shares by paying the required exercise price
Exercise price
The price that you have to pay to convert the options into shares e.g. if the options are granted at an exercise price of Rs.30 and you want to exercise 100 options then you have to pay Rs.3,000 (30 x 100).
Exercise Period
This is the period within which you can decide to exercise your options. This period starts from the date of vesting.
Lapse of options
Options lose their validity in certain circumstances i.e. expiry of the exercise period, separation, abandonment etc. These options then cannot be converted into shares and lose their value. Such options are said to have lapsed.
Perquisite
The difference between price of the shares as on the exercise date and the exercise price. This is the non-cash amount that is earned as a benefit which is added to salary for tax calculation.