Effective resolution for underwater ESOPs

A large cap listed company in the automotive sector had been implementing ESOPs successfully since long. The company as a policy used to grant the ESOPs at exercise price equal to share’s market price as on date of grant.

However, with the stock market’s wide fluctuations, the share price went ~half of the exercise price. There were least hopes that the stock price would recover well above the exercise price before the expiry of the exercise period. There was a pessimistic atmosphere.

It was important to keep the talents motivated as they helped company to deliver performances at par or in excess of industry even in tough times. Company took a view to redress the situation.

A comparative analysis was done w.r.t. available way-outs like repricing, additional grant, option exchange, a different ESOP plan, etc., their ability to deliver redressal beyond doubt, respective accounting cost and corporate tax savings. Basis the analysis, a new ESOP plan was implemented with flexible pricing.

Employees were granted discounted ESOPs under the new ESOP Plan keeping the old ESOPs intact purposefully.