Sebi issues detailed Esop disclosure norms

The Securities and Exchange Board of India (Sebi) issued a circular on detailed disclosure norms for listed firms while exercising employee stock options programmes (Esop) to address concerns regarding potential market abuse.

The norms stipulate that the compensation committee constituted by companies for ESOP schemes will be required to formulate detailed terms and conditions.

In addition, companies have to disclose information about the Trust, powers and duties of the trustee. These disclosures are aimed at improving governance and transparency of such schemes.

The Sebi circular, sent to all stock exchanges, 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 had in October 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 Esops 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, the Sebi circular states.