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Employees Incentive Plans:

1. Introduction:

Despite of various Incentive schemes available to the employees in the market, the two kinds of incentives used predominantly in today’s era are Cash Settled Incentive Scheme and Equity Settled Incentive Schemes, which can be granted to the employees in order to boost their productivity and performance and thereby promoting success of the organisation.

Cash settled incentives includes Cash or performance bonus plan, Phantom or shadow stock plans, Restricted Stock Units etc. Whereas Equity Settled Incentives includes Employee Stock Purchase Plan, Employee Stock Option Plan etc.

2. Benefits:

Cash settlement is one of the most popular and frequently used settlement options used in option contracts and futures trading. It enables liquidity in the market. On the other hand, Equity settled plans results in increased cash flow, tax-saving opportunities that offer more flexibility for the business and a workforce that is both happier and more productive, allowing for goals to align with the company's objectives.

3. Briefing:

A cash bonus refers to a lump sum of money awarded to an employee or offers cash bonuses to employees either occasionally or periodically based upon the good performance. Phantom Stock Plan is a type of deferred employee compensation plan where the type of shares issued to plan participants are phantom shares instead of company shares. Whereas a Restricted Stock Unit (RSU) is an award of stock shares, usually given as a form of employee compensation.

Employee Stock Purchase Plan (ESPP) and Employee Stock Option Plan (ESOP) forms a part of Equity Settled plans. An ESPP is a program in which employees gets the option to purchase company stock at a discounted price. The goal is that employees can purchase valuable stock for lower than the market price, allowing them to make a profit. ESOP, on the other hand, are contracts between a corporation and its employees that provide employees the right to acquire a specific number of the company’s shares at a set price over a set period of time.

There is a strong need for organisations to opt for differential voting rights thereby enhancing security and reliability and also to explore and grant various exit options to ESOP holders in order to achieve overall success in the stream of ESOPs.

4. Differential Voting Rights:

Company gets right to issue ESOPs at a different exercise price for each employee or class of employee. As ESOPs must carry voting rights which may be same as exiting shareholders, it may also be issued with Differential Voting Rights thereby providing an option to be issued at discounted rate. It helps in preventing hostile takeovers.

5. Exit Options:

It is advisable to pave attention to exit options available to existing ESOP holders in order to make it a successful program which can be as follows:

a. Management Buyout: Companies will buy-back stocks from employees when they leave, as it improves the diluted ownership of other investors, and also rewards ex-employees for their hard work. However, the company typically will not be obligated to buy the stocks back if it does not want to.

b. Investment from Private Equity (PE) Firms: PE firms are professionally run investment companies that expect a return on their investment. They’re selective about companies in which they invest.

In PE backed ESOP co-investment, the PE firm invests in a company by:
i. Lending the company subordinated debt with warrants
ii. The proceeds of which are lent by the company to the ESOP which in turn
iii. Buys the selling shareholders equity shares.
c. Secondary Market Platform for ESOPs: There are various private platforms that offers sale of ESOPs. In India, the secondary market for start-up equity has been run by large private equity firms that require a minimum lot size available for sale. And this means, you’re probably going to find it hard to work with a traditional PE firm that can take on a small lot size. Another great new alternative is secondary marketplace platforms like Incentiv which allows smaller lot sizes and far less paperwork. A few important things to look out for while picking a secondary market platform are user-friendliness, security measures, and fees associated with the transactions.

d. ESOPs of an unlisted company grants the right of ownership of shares in the Company. Since the company does not get an IPO/cannot raise money/remains unlisted or does not come up with a buyback, there is a sort of risk when it comes to encashment of ESOP shares. However, this risk can be avoided by selling those shares off-market. In this case, the returns from the ESOP might be inadequate till the company goes public.

1. Introduction:

Despite of various Incentive schemes available to the employees in the market, the two kinds of incentives used predominantly in today’s era are Cash Settled Incentive Scheme and Equity Settled Incentive Schemes, which can be granted to the employees in order to boost their productivity and performance and thereby promoting success of the organisation.

Cash settled incentives includes Cash or performance bonus plan, Phantom or shadow stock plans, Restricted Stock Units etc. Whereas Equity Settled Incentives includes Employee Stock Purchase Plan, Employee Stock Option Plan etc.

2. Benefits:

Cash settlement is one of the most popular and frequently used settlement options used in option contracts and futures trading. It enables liquidity in the market. On the other hand, Equity settled plans results in increased cash flow, tax-saving opportunities that offer more flexibility for the business and a workforce that is both happier and more productive, allowing for goals to align with the company's objectives.

3. Briefing:

A cash bonus refers to a lump sum of money awarded to an employee or offers cash bonuses to employees either occasionally or periodically based upon the good performance. Phantom Stock Plan is a type of deferred employee compensation plan where the type of shares issued to plan participants are phantom shares instead of company shares. Whereas a Restricted Stock Unit (RSU) is an award of stock shares, usually given as a form of employee compensation.

Employee Stock Purchase Plan (ESPP) and Employee Stock Option Plan (ESOP) forms a part of Equity Settled plans. An ESPP is a program in which employees gets the option to purchase company stock at a discounted price. The goal is that employees can purchase valuable stock for lower than the market price, allowing them to make a profit. ESOP, on the other hand, are contracts between a corporation and its employees that provide employees the right to acquire a specific number of the company’s shares at a set price over a set period of time.

There is a strong need for organisations to opt for differential voting rights thereby enhancing security and reliability and also to explore and grant various exit options to ESOP holders in order to achieve overall success in the stream of ESOPs.

4. Differential Voting Rights:

Company gets right to issue ESOPs at a different exercise price for each employee or class of employee. As ESOPs must carry voting rights which may be same as exiting shareholders, it may also be issued with Differential Voting Rights thereby providing an option to be issued at discounted rate. It helps in preventing hostile takeovers.

5. Exit Options:

It is advisable to pave attention to exit options available to existing ESOP holders in order to make it a successful program which can be as follows:

a. Management Buyout: Companies will buy-back stocks from employees when they leave, as it improves the diluted ownership of other investors, and also rewards ex-employees for their hard work. However, the company typically will not be obligated to buy the stocks back if it does not want to.

b. Investment from Private Equity (PE) Firms: PE firms are professionally run investment companies that expect a return on their investment. They’re selective about companies in which they invest.

In PE backed ESOP co-investment, the PE firm invests in a company by:
i. Lending the company subordinated debt with warrants
ii. The proceeds of which are lent by the company to the ESOP which in turn
iii. Buys the selling shareholders equity shares.

c. Secondary Market Platform for ESOPs: There are various private platforms that offers sale of ESOPs. In India, the secondary market for start-up equity has been run by large private equity firms that require a minimum lot size available for sale. And this means, you’re probably going to find it hard to work with a traditional PE firm that can take on a small lot size. Another great new alternative is secondary marketplace platforms like Incentiv which allows smaller lot sizes and far less paperwork. A few important things to look out for while picking a secondary market platform are user-friendliness, security measures, and fees associated with the transactions.

d. ESOPs of an unlisted company grants the right of ownership of shares in the Company. Since the company does not get an IPO/cannot raise money/remains unlisted or does not come up with a buyback, there is a sort of risk when it comes to encashment of ESOP shares. However, this risk can be avoided by selling those shares off-market. In this case, the returns from the ESOP might be inadequate till the company goes public.

Exploring Non-Convertible Debentures: An Unconventional Path for Corporate Funding
Introduction: Traditional funding methods for corporates include banks, NBFCs, VC, PE firms, and IPOs. Non-convertible debentures (NCDs) offer an alternative, though less commonly used, avenue for raising capital.

Key Points:
1. NCDs in Corporate Financing:
· Financial institutions commonly use NCDs for secured or unsecured loans.
· Corporations, both private and public limited, can issue NCDs, but it's not a frequently utilized method.
2. Increasing Accessibility:
· Face value drop from Rs. 10 lakhs to Rs. 1 lakh has led to a rise in non-institutional subscribers.
· There's a suggestion to further reduce the face value to Rs. 10,000.
3. SEBI Initiatives:
· SEBI introduced Online Bond Platform Providers, engaging new individual investors.
· SEBI regulations allow NRIs to invest in bonds or NCDs issued by Indian businesses, broadening investment opportunities for NRIs.
· NRIs now have access to a wider range of investment opportunities.
4. Listing Requirements for Private Limited Companies:
· Private limited companies can list with a minimum net worth of Rs. 4 crores and an A3 credit rating, making it accessible.
5. Alternative to Working Capital Limits:
· NCDs can be a viable alternative for companies facing collateral limitations from banks when seeking working capital limits.
· Corporate NCDs offer attractive coupon rates between 9 and 13 percent.
Conclusion: Non-convertible debentures provide an unconventional yet accessible means for corporations to raise capital. Recent regulatory changes and SEBI initiatives have increased the instrument's popularity, offering new opportunities for both institutional and non-institutional investors. Corporates facing constraints in traditional financing avenues may find NCDs to be a viable and attractive alternative. NRIs, in particular, benefit from expanded investment opportunities in Indian businesses through NCDs.

6 BENEFITS OF TRADEMARK REGISTRATION

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NUMBRO wishesh you HAPPY SRIRAMA NAVAMI

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