Effective resolution for underwater ESOPs

Fair value and accounting treatment plays a critical role in deciding what kind of resolution to be given in case of underwater situation of ESOPs. Underwater situation refers to where the market price of shares goes below the exercise price i.e. the ESOPs are out of money.

In a listed company in automotive sector, a comparative analysis was done w.r.t. available way-outs like repricing, additional grant, option exchange, or a different ESOP plan, etc., with their respective accounting cost impact and corporate tax savings.

This needed meticulous application of accounting standard and fair value computation to opine as to the total accounting cost arising out of old ESOPs (both vested and unvested) and cost that may be additionally incurred for redressal decided.

This had helped the company in making an informed decision making.