ESOPs have always been an instrumental tool for financial planning and retaining top talent by corporates in the West. Since mid 90s' this financial instrument has made its headway in India too, albeit on a smaller .Though it was Reliance first who thought of implementing it in India, many other corporates took the lead in this regard. ESOP has always been a classic case of deft financial jugglery, and the juggler's improving. The latest on the list is DLF. And they call their brainchild ' Shadow' ESOP.
In a normal ESOP, the company allots you say 1000 shares at Rs. 10 (to be paid later) with a vesting period of 5 years. You sit idle on your 'alloted shares' for five years. If the market value of share is Rs. 50 at end of five years,you just need to pay Rs. 10,000 ( 1000 X 10) to the company and get those shares.
In case of a shadow ESOP, you'll pay nothing, but the company will pay you Rs. 40,000 ( the diff. between market value and value offered to you) or the option to continue your 'shadow' stock. Direct benefits of this method is that it doesn't lead to any further issue of shares and hence no equity dilution. Also, your EPS remains intact. The other side of the coin, it results into a direct cash outflow from the company. Well, the accountants are sure in for some restless nights as they try to figure out the appropriation methodology for this potential outflows.
PS : DLF stands for ..'Damn Lucky Fellow'..(c'mon i m not kiddin this time, sacchi....ask K.P. Singh, the real DLF)
2 comments:
Well thought out and discussed....just goes to show that no matter how stringent FBT becomes,companies will always find ways to subvert tax liabilities.
Hahaha..i dont know whether there was a demand or not, but supply was less or rather not there. Management tactics re...
Hmmm..pata hai bypass mahenga hai..writing on Medical Tourism these days and the cost we pay is 15th of what people in developing countries do....thus am a little relaxed ;)
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