ESOPs made more than 1,000 employees millionaires in just one year!

Due to ESOP, more than 1000 employees of IPO bound companies in India have a net worth of at least Rs 1 crore ($125k) each since August 2021. The Economic Times reports that 350 employees became millionaires after Paytm's $2.5 billion last year IPO alone.

What has made recent IPO filing to choose ESOP and Sweat equity provision??

Going through SEBI Circular on ESOP and Sweat Equity effective since August 2021, I found a few interesting things that make ESOP and Sweat Equity provisions appealing.?

Here's a quick summary:?

The SEBI-Employee Stock Option Plan (ESOP) regulations of 2021 govern all sweat equity shares and share-based employee benefit plans. The new regulation simplifies and rationalizes the provisions. The regulations provide additional flexibility, transparency, and good governance in relation to the handling of equity shares.?

The Act: Stock Based Employee Benefits and Sweat Equity Regulations, 2021?

The Securities and Exchange Board of India (SEBI) adopts new regulations for employee stock ownership plans (ESOPs) to promote good governance. SEBI notified the Share Based Employee Benefits and Sweat Equity Regulations, 2021 (SEBI ESOP Regulations 2021) on 13 August 2021. Purpose of the new regulation is to streamline and rationalize the provisions by: ?

• Making them more robust ?
• Synchronizing them with global best practices ?
• Improving ease of doing business ?

Key changes in the regulations: ?

SEBI ESOP regulations 2021 include specific references to employees of a group company and its associate company. The term group has been included for the first time under the new regulations to mean two or more companies which, directly or indirectly, are able to: ?

1. Hold 26% or more of the voting rights in the other company.?
2. Control the management or affairs of the other company by appointing more than 50% of the board of directors.?
3. In addition to these changes, SEBI's ESOP regulations 2021 include the following:?

• in principle approval from the stock exchanges prior to the grant of options,?
• vesting in case of superannuation/layoff,?
• In the event of death, the vesting period must be extended,??

The bottom line:?

With many new generation companies listing their shares, SEBI ESOP regulation 2021 is a welcome step at a time when markets are overflowing with positive intent. In addition to adding accountability to the law, new regulations are being promulgated to make the erstwhile regulations more robust and in line with global best practices and ease of doing business. These changes are expected to bring more change to the corporate world in the future.?