Attracting and retaining competent professionals are challenging tasks faced by many organisations. Besides cash rewards, it is important for organisations to make their employees believe that their personal growth is linked to the growth of the organisation. Equity Incentive Plans (EIPs) are one of the important tools to achieve this objective. The feeling of ownership has been generally observed to have a positive impact on the employee engagement scale, especially in case of employees who are thinking of a long-term career with the organisation.

In recent times, EIPs have been used effectively to attract, retain, motivate and compensate employees. Further, certain regulatory compensation guidelines also require mandatory inclusion of EIP in total rewards/variable compensation at a reasonably senior level of employees.

EIP is an employee benefit plan under which an employee has the right to acquire equity at a discounted value without any underlying obligation to do so.

Any EIP should meet the tax and regulatory compliance requirements. This includes devising an appropriate plan, ensuring that the EIP is compliant with the current provisions of income tax act, company law, foreign exchange regulations, Securities and Exchange Board of India (SEBI), regulations thereunder, etc. These issues need to be specifically addressed wherein equity rewards of an overseas parent company are being given to the employees of the Indian subsidiary/office or where stock options of an Indian company are given to the employees of an overseas subsidiary/office.

It is important to that EIPs are attractive for employees, simple to understand and administer and also that they convey the underlying message of the employer. In recent times, accounting implications of issuing EIPs have undergone substantial changes and have become a critical factor in the decision-making process.

Appropriate planning, a focussed approach and assistance during the planning and implementation stages can help avoid compliance defaults and facilitate putting a tax efficient methodology in place.

Key service offerings

Our team provides client organisations with a suite of service offerings pertaining to tax and regulatory compliances for employee equity incentive schemes. These include:

  • Advise on selection of an appropriate EIP which may be in the form of employee stock purchase plan, restrictive stock awards, stock appreciation rights, etc.
  • Assistance in formulating an EIP
  • Advise on documents pertaining to EIP from a tax and regulatory perspective
  • Advise on implications of applicable Indian law and regulations from a tax and regulatory perspective
  • Address cross-border tax issues with the help of our international network
  • Advise on planning mechanisms, for example, the Trust route
  • Advise on the accounting implications  
  • Assistance in identifying required disclosure requirements.