Gaining employee loyalty: SECP issues guidelines on structuring ESOS

Such plans are used in developed countries to retain key employees

APP April 30, 2016

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued the guidelines for structuring and offering of the ‘Employees Stock Option Schemes ‘(ESOS) 2016, under Section 506B of the Companies Ordinance 1984, read with the Public Companies (Employees Stock Option Scheme) Rules, 2001.

The ESOS or plans are programmes offered by the public companies to their employees giving them the right, without obligation, to purchase specified number of shares of the company at a predefined price, within a stipulated time period.

In developed and emerging markets, ESOS are commonly used by the corporates for retention of their key employees whose services are critical for business growth.

The ESOS can be used as compensation as well as incentive for employees. This encourages the employees to develop a long-term association with corporates.

These schemes provide employees the opportunity to get ownership in the company which may help increase productivity and growth in the business of the company.

The guidelines provide for composition of the compensation committee, duties and responsibilities of the committee, methodology for deriving the exercise price, procedure for approval of the schemes, disclosures to be made in the scheme, format of application form, list of documents to be submitted with the application and the model scheme.

It is expected that the guidelines would encourage public limited companies to use ESOS as a useful tool for gaining loyalties of their employees. 

Published in The Express Tribune, May 1st, 2016.

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