New Delhi: Market regulator Sebi on Tuesday came out with detailed disclosure norms for listed firms while exercising employee stock options programmes (ESOP) to address concerns regarding potential market abuse.
As per the norms the compensation committee constituted by companies for ESOP schemes will be required to formulate detailed terms and conditions.
In addition they have to disclose information about the trust, powers and duties of trustee.
These disclosures are part of Securities and Exchange Board of India's (Sebi) efforts to improve governance and transparency of such schemes.
The Sebi circular details wide ranging disclosures that listed firms are required to make with regard to Employee Stock Option Scheme (ESOS), SAR (stock appreciation right) and description of the schemes, among others.
Sebi in October had notified new ESOP regulations, including for purchase of shares by employee welfare trusts from the secondary market with adequate safeguards.
It had allowed companies to have employee stock option programmes where they can buy their own company shares subject to certain conditions.
Sebi said that companies will have to disclose description of each scheme that existed at any time during the year, date of shareholders' approval, pricing formula and source of shares (primary, secondary or combination).
"Where the company opts expensing of the options/SAR using the intrinsic value of the options/SAR, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognised if it had used the fair value of the options/SAR shall be disclosed. The impact of this difference on profits and on EPS of the company shall also be disclosed," Sebi noted.
The companies will have exhibit employee wise details like name of employee, designation, number of options granted during the year and exercise price.
In addition, a description of the method and significant assumptions used during the year to estimate the fair value of options need to be revealed.
"Until all options granted in the three years prior to the IPO have been exercised or have lapsed, disclosures of the information specified above in respect of such options shall also be made," Sebi noted.
The compensation committee have to frame rules regarding specified time period within which the employee can exercise the vested options or SARs in the event of termination or resignation of an employee.
"The right of an employee to exercise all the options or SARs, as the case may be, vested in him at one time or at various points of time within the exercise period," Sebi said.
"The procedure for cashless exercise of options or SARs," it added.
Besides, companies will have to inform stock exchanges with regard to description of schemes including authorised share capital of the firm, validity period of the scheme, lock-in period and vesting period and total number of shares reserved under the scheme.
Regarding Trust, Sebi said that companies will have to disclose details of the trust including name, object and source of funds.
The regulator has come out with modified share based employee benefits regulations in light of the insider trading regulations that came into effect last month.
Sebi said that companies have to comply with the new insider trading norms.
The undersigned firm has to undertake the "company has in place systems/codes/procedures to comply with the SEBI (Prohibition of Insider Trading) Regulations, 1992 or any modification or reenactment thereto."
The new rules on insider trading prohibit an employee from buying and selling a share within a period of six months.
