Tuesday, 4 November 2014

SEBI (Share Based Employee Benefits) Regulations, 2014

SEBI (Share Based Employee Benefits) Regulations, 2014


With the intent to keep a check on certain ongoing malpractices under the garb of ESOPs and the trusts to implement them, SEBI has mandated to bring all share based employee benefit schemes under the regulatory ambit and has therefore, notified new regulation namely SEBI (Share Based Employee Benefits) Regulations, 2014 (“Regulation”) via notification no. LAD-NRO/GN/2014-15/16/1729 dated October 28, 2014, thereby repealing the existing SEBI (ESOS & ESPS) Guidelines, 1999. The provisions of these regulations shall apply to companies whose shares are listed and where the schemes have been set up, funded or controlled by the listed entity or any of their group companies.

Earlier in an attempt to prohibit companies from buying/selling its own securities in the secondary market, SEBI had amended the erstwhile ESOP guidelines in January, 2013. The said Regulations have brought an end to the ongoing dilemma as to allowance/disallowance of secondary market purchases for ESOPs. SEBI has allowed secondary market acquisitions by the trusts subject to compliance of certain conditions.

In addition to Employee Stock Option Scheme (ESOS) and Employee Stock Purchase Scheme (ESPS), the Regulation covers the following new employee benefit schemes which deal in shares of the company:

a.    Stock Appreciation Rights Scheme (SARS);
b.   General Employee Benefit Scheme (GEBS);
c.    Retirement Benefit Scheme (RBS).

The companies shall constitute a Compensation Committee for administration and superintendence of the schemes. Where the scheme is being implemented through a trust the Compensation Committee shall delegate the administration of such scheme(s) to the trust. Furthermore, in order to provide adequate safeguard measures, SEBI has included the requirement of shareholders approval through special resolution for undertaking secondary market acquisitions.


The said move by SEBI seems to be instrumental in aligning the provisions of the Regulations with the Companies Act, 2013 thereby ensuring transparency in the operations on one hand and bringing all trusts together with the welfare schemes involving shares of the listed entities under the regulatory arena.

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