Key aspects to consider when finalising ESOP Grant Letter

February 23, 2024by Ms. Mohini Varshenya0

Employee Stock Options Plan are very crucial in retaining and attracting the talent in an Organisation, but they need to be carefully thought out and planned in advance, in order to align the Plan with the objectives of the organisation and employees.

Communication of Plan: A Company issues Employee Stock Options to an employee by issuing a Grant Letter which contains the most crucial features of any ESOP Plan. This letter is an important document that helps the employee understand their rights & obligations

Some of the crucial aspects to be considered while finalising a Grant Letter are:

  • Grant Date: The Grant date is the effective date from which the Company approves the grant of Stock Options to an employee.
  • Number of Options Granted: The number of Options approved and granted by the Company to an employee needs to be defined in the Grant letter.
  • Vesting Conditions: The vesting of Options is linked with specific performance conditions. If the employee satisfies these conditions, then the options will get vest in hands of the employee.
  • Vesting Period: Vesting period clearly defines the time period in which the number of Options granted shall get vests in the hands of the employee.
  • Exercise Period: The time period or the events within which an employee can exercise his Options, needs to define in the Grant letter.
  • Exercise Price/Grant Price: Exercise price is the amount which the employee has to pay to the Company at the time of converting options to Shares of the Company, therefore it should be communicated at the time of grant.

Thus, ESOP Grant Letter represents an opportunity to participate in the ownership of the Company and derive wealth from the Company’s growth and success. However, it comes with considerations that require careful thought by understanding the terms and conditions laid out in the grant letter and making informed decisions that align with the Employee objective.

Generally, in the Companies, it is signed by both Employer and Employee to make it a binding Agreement.

Ms. Mohini Varshenya

Ms. Mohini Varshenya

Partner & Head-ESOP Services

FCS

mohini@indiacp.com

+91 9971673332

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