How is ESOP fair market value calculated?
For unlisted companies, the CCI had prescribed two methodologies — net asset value (NAV) and, profit earning capacity value (PECV) — for calculating fair market value. According to the net asset value method, the fair value will be the networth of the company, as per its balance sheet, divided by number of shares.
How much ESOP should I expect?
The standard and well-tested practice is to consider anything between one and two percent for a CXO, and between 0.25 and one percent for a key hire one level below a CXO. A professional CEO may need four-eight percent.
How does ESOP value increase?
When the employee sells the shares: When the employees sell the shares allotted to them under ESOP at a higher price, then it leads to capital gains. Selling such shares at higher prices is calculated either as short-term or long-term capital gains.
What is face value of share?
The face value is the price at which the company is valued in the beginning (before it is listed in the stock market). And after the company is listed, the price at which it trades in the stock market becomes the market value of the share.
How do I sell my ESOP shares?
When you decide to sell your shares, all you need to do is contact your ESOP representative at your company. This may be someone in your human resources department or you will be directed to an outside company which administers the program and manages the liquidation process.
What is the pre-determined value of an ESOP in India?
The ESOP should be approved by at least 75\% majority of shareholders of the Startup. Pre-determined value could be the face value of the shares. For example a share, whose market value is Rs. 1,000 could be made available to the employee at Rs. 10. The benefit to the employee, of course is the difference, which in my example is Rs. 990 per share.
Who are the buyers in an ESOP valuation?
In an ESOP valuation, buyers are employees who are motivated by the long term retirement potential associated with ownership in the company they are helping to build.
What is an ESOP stock option?
Stock Option, as the name suggests, is an ‘option’ to buy the underlying asset, which is a share of the Startup. There is no obligation on the employee to buy the shares; it is only an option which the employee may or may not exercise. Every ESOP will have the following components;
How to structure the ESOP correctly?
Thus, it is very important to structure the ESOP correctly. Stock Option, as the name suggests, is an ‘option’ to buy the underlying asset, which is a share of the Startup. There is no obligation on the employee to buy the shares; it is only an option which the employee may or may not exercise.