Challenges In ESOP

Employee Stock Option Plan (ESOP) is a commonly used incentive mechanism to reward employees and most popular with start-up / unlisted companies that cannot afford to pay high salaries to attract talent, but are willing to share the future prosperity of the company. Given the disruption the pandemic has created the priority of most companies is to conserve cash and ensure continuity and one of the alternatives to defer cash payments is ESOP. Taxation of stock options ESOPs are taxable on exercise as perquisite in the hands of employees, at the Fair Market Value (FMV) on the date of the exercise. The taxable benefit would be the difference between FMV and the exercise price. In case of listed companies, the value of the shares quoted on the stock exchange is FMV. As the employees do not receive any cash at the time of exercise, employees may choose to sell a part of the shares allotted,...