Should General Employee Benefit Scheme and Retirement Benefit Scheme be covered under the ambit of ESOP Regulations?

“It might be said that it is the ideal of employer to have production without employees and the ideal of the employee is to have income without work” – E.F. Schumacher. But this conception is far from reality. In order to have efficient business, employee needs to be loyal and motivated and employer needs to nourish and take care of his employees. 

Ms. Mohini Varshney
Assistant Vice President
A number of employee benefit schemes like General Employee Benefit Schemes (including Retirement Benefits Scheme) where benefits like education, scholarship, medical etc. are extended to employees via Special Purpose Vehicle (i.e. Trusts) either using appreciation from
the underlying shares of the Company/other Companies held by said Trust or from the investments made in the mutual funds, FDs, etc. with the preliminary objective of motivating employees. But such Schemes are merely acting as a powerful tool for motivating Employees, therefore covering them under the shed of ESOP Regulations, is still a matter of discussion.


Recently, the capital market regulator, SEBI proposed to carve out a separate section in the proposed ESOP Regulations subject to specific statues governing such schemes. The matter of brainstorming here is whether these schemes should be governed by regulations regulating employee stock options/ share purchase schemes or a separate legislation should be carved out for regulating functioning of such Trusts.

As per the SEBI’s Discussion Paper on 'Review of guidelines governing stock related employee benefit schemes' any employee benefit schemes which are set up, managed or financed by the company directly or indirectly through the mechanism of a Trust and which deal in actual securities of the company whether by way of purchase from/sale in the secondary market. However, for the purpose of schemes like General Employee Benefit Schemes and Retirement Benefit Schemes, the Trusts are not settled barely for the purpose of dealing in the securities of the Company and extending monetary values or direct ownership rights to the Employees but for the purpose of investing in the capital markets for the purpose of extending medical, retirement benefits etc. to the Employees from the revenue generated from such investments. 

In such a scenario, it would become practically difficult to determine as to how the benefits would be distributed among the employees owing to the fact that the ESOP regulations specifically exclude promoters and certain category of directors. Such exclusion would be inappropriate specifically, where the Promoters or persons related to Promoters are working in their Professional Capacity and mere exclusion from extending welfare facilities to them may directly or indirectly hamper the motivational level of such Promoters or persons related to Promoters. Thus, a clear line of distinction needs to be drawn for demarcating schemes which should be subject to proposed ESOP Regulations.

Ms. Mohini Varshneya
Assistant Vice President
Corporate Professionals
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