Non-permanent staffers should be eligible for share-based employee benefits: Sebi expert group

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July 08, 2021 8:00 PM

In addition, it has suggested for relaxations with respect to the quantum of sweat equity shares that can be issued by new-age companies listed on the Innovators Growth Platform, according to a consultation paper issued by Sebi on Thursday.

Sebi (Securities and Exchange Board of India))The Securities and Exchange Board of India (Sebi) has sought comments from the public till July 25 on the recommendations.

An expert group constituted by Sebi has recommended that non-permanent staffers should be considered eligible to receive share-based employee benefits.

In addition, it has suggested for relaxations with respect to the quantum of sweat equity shares that can be issued by new-age companies listed on the Innovators Growth Platform, according to a consultation paper issued by Sebi on Thursday.

The seven-member group, chaired by Partner, S&R Associates Sandip Bhagat, has made several policy recommendations in its 141-page report, including combining both sweat equity and SBEB (share based employee benefits) regulations.

The objectives for which issuance of sweat equity shares are permitted and the maximum limit on the quantum of such shares issued by a company should be incorporated in the rules, the group recommended.

In addition, the panel considered various practical issues in relation to implementation of employee stock purchase schemes through a trust and certain aspects involving grant, vesting and exercise of options and rights.

On the flexibility to alter the route for administration of a scheme, it has been suggested that flexibility should be accorded to the companies to switch routes — from trust to direct route or vice versa — subject to the approval of the shareholders by a special resolution.

The suggestions are aimed at improving ease of doing business from a regulatory perspective.

The Securities and Exchange Board of India (Sebi) has sought comments from the public till July 25 on the recommendations.

In relation to sweat equity, it has been recommended that the lock-in period for sweat equity shares and its pricing formula should be consistent with the ICDR (Issue of Capital and Disclosure Requirements) Regulations.

Keeping in mind the current employment practices, it has been recommended that non-permanent employees may also be considered for eligibility to receive share-based employee benefits.

Accordingly, “employees” as defined by companies should be eligible under the SBEB Regulations, as opposed to earlier position of only “permanent employees”.

With regard to lock-in restrictions imposed on trusts under the SBEB rules for shares acquired through the secondary market, it has been suggested that such restrictions needed to be retained and do not require any amendment.

The maximum time period prescribed for appropriation of shares not backed by grants acquired through secondary acquisition by a trust, should be extended by an additional period of one year, subject to the approval of the Compensation Committee.

Thus, such shares may be held for two years. “Upon winding up of schemes / trust, transfer of shares or monies held by a trust should be permitted to be transferred to one or more existing share-based employee benefit schemes under the SBEB Regulations, subject to approval of shareholders,” the consultation paper noted.

Further, in relation to availing of loans by a trust, the group said companies and their trusts should be entitled to identify and avail loans from or financing through legally permissible modes as they deem fit.

In relation to compliance by a trust with the insider trading rules, the expert group agreed with the position of Sebi that such regulation is required to ensure transparency and good governance, and accordingly, no relaxations were recommended in the SBEB rules.

With regard to voting of shares held by the trust, the group said no regulatory change was required in this regard as well.

It has also been suggested that a clarification should be included in the definition of ‘grant date’ that for accounting purposes, the grant date will be determined in accordance with applicable accounting standards.

For the vesting period in case of death or permanent incapacity of the employee during the first year from date of grant, it has been suggested that a more lenient view could be taken in such situations to allow for immediate vesting, instead of vesting of only such granted benefits that are in proportion to the period of service.

With regard to settlement of cash in lieu of shares in certain circumstances, the expert group recommended that if due to regulatory requirement a firm is unable to issue shares, there should be an option to settle in cash.

This settlement in cash option should be approved by the shareholders.

“The expert group also considered whether the threshold of 10 per cent of the book value / market value/ fair value of total assets for general employee benefits schemes should continue to be considered on an ongoing basis and recommended that such assessment should be made as on the date of the balance sheet,” the consultation paper noted.

With respect to the issue of multiple approvals required from the stock exchanges, it has been suggested that Sebi and bourses should consider combining multiple approvals into composite approvals, where feasible.

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