In the last blog of our ESOP101 series, we delved into the Structuring Employee Equity Pool in India and understood the nuances of setting up the pool to grant equity options. In this blog, we’ll explain the process of granting ESOPs to your employees.
What is an ESOP grant?
A grant is given after setting up an ESOP policy that outlines the details of the equity compensation plan for the company. This ESOP policy scheme includes particulars on eligibility criteria, vesting schedules, allocation methods, and other essential provisions.
Once the eligibility criteria are confirmed and communicated to the employees, the options can be granted by signing a ‘Grant Letter’. The granting of options means that an employee can buy company shares if they continue working for at least a defined period of time (vesting period) at a discounted price (strike/exercise price).
A grant letter is a legally binding agreement between the employer and the employee that breaks down the specifics of the ESOP award to be offered to an employee. Every company identifies an authorized signatory for the grant letter: the director, C-suite executive, company secretary, board members, or a designated compensation committee.
Essentials for a standard grant letter
A typical grant letter will include the following:
- Company information: Begin the letter by including the name and address of the company, as well as any relevant legal entity details
- Details of employee’s name, job title, and other identifying information to ensure accuracy
- Specifics about the grant, including ESOP plan, number of units or percentage of ownership being granted to the employee.
- Clarify any restrictions on the units, such as vesting periods or performance-based conditions
- Outline of the vesting schedule that specifies when the employee’s ownership rights will become fully vested, including timeline and any milestone requirements
- Specify the details of the exercise price, including how it will be determined
- Clarify termination scenarios, including information on the right of first refusal, buyback options, or other provisions defined in the ESOP plan. It’s not mandatory to mention this in the grant since the ESOP Scheme document usually covers all of these details, but you can affix the Scheme document with the grant while sharing it with your employees
- Specify clauses on confidentiality and non-disclosure, particularly for any proprietary or sensitive details
Get counter-signatures to deem a grant viable
The grant process is cumbersome and error-prone. Many companies resort to manually drafting multiple grant letters, giving room for error and inefficiency. Furthermore, grant creation and issuance is an orchestrated process as it requires multiple stakeholders’ coordination.
Companies are advised to use an equity management platform such as EquityList to ensure an efficient, less error-prone process for issuing grants.
With EquityList’s full-stack equity management platform, a company can execute hundreds of grants in a few clicks, compared to over a week if done manually without the help of equity management software.
EquityList can help the company administrators to:
- Select eligible employees
- Roll out individual grant letters (customised to the company’s branding) with specific vesting scheduled and grant level information
- Get the e-sign from the authorised signatory and employees at the click of a button
- Efficiently roll out hundreds of grants via bulk operations
Equity management software allows you to keep track of the entire ESOP workflow, starting from grants to exercising on the EquityList platform, and ultimately creating a smoother and more transparent process for the company and its employees.
If you have more questions, feel free to contact us at firstname.lastname@example.org. Stay tuned for the next blog!