Paytm crisis struck 2.8 lakh staff stock options are added to its ESOP pool.

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By Ruvie S

The announcement coincides with rumors that PAYTM may announce up to 20% of layoffs in the current fiscal year due to RBI regulatory hurdles.

One97 Communications-owned fintech leader PAYTM stated that it has expanded the pool of equity shares available to employees under its employee stock option plan (ESOP) by assigning 281,394 shares to staff members. This move is primarily intended to help retain talent.

In a July 7 stock exchange statement, Paytm stated that it has authorized the distribution of 281,394 equity shares, fully paid up, with a face value of one rupee each, to qualified employees.

According to the corporate release, the shares will be distributed in accordance with the Employee Stock Option Scheme 2008 and the Employee Stock Option Scheme 2019.

With this event, Paytm’s issued, subscribed, and paid-up equity share capital would amount to Rs 636,274,090, which would be made up of 636,274,090 equity shares with a face value of Rs 1 apiece.

What Are Employee Stock Options?

An employee stock option (ESO) is a form of equity compensation granted by companies to their employees and executives. Instead of directly giving shares of stock, the company provides options on the stock. These ESOs are essentially call options that allow the employee to buy the company’s stock at a specified price within a defined time frame. The terms of ESOs are detailed in an employee stock options agreement.

Types of ESOs

  1. Incentive Stock Options (ISOs): These options are typically offered to key employees and top management. ISOs receive preferential tax treatment, as gains on such options are considered long-term capital gains by the IRS.
  2. Non-qualified Stock Options (NSOs): NSOs can be granted to employees at all levels, board members, and consultants. Profits from NSOs are treated as ordinary income and taxed accordingly.

Benefits of ESOs for Employees:

  1. Direct Participation: ESOs allow employees to directly share in the company’s success through stock ownership.
  2. Financial Gains: When the stock price rises above the ESO exercise price, employees can profit by either selling the stock or holding it.
  3. Pride of Ownership: Owning a stake in the company can motivate employees to be more productive and committed.

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Tax Implications:

  • ESOs are taxed at the time of exercise.
  • Stockholders will be taxed if they sell their shares in the open market.

Time Value of ESOs:

Even if ESOs have zero or little intrinsic value (i.e., the stock price is below the exercise price), they can still hold significant time value. This value arises from the potential for future stock price appreciation.

In summary, ESOs provide employees with an equity incentive to contribute to the company’s growth and success. By granting ESOs, companies align employee interests with the organization’s performance, fostering loyalty and engagement.

Remember, ESOs are a powerful tool, but understanding their nuances is essential. Companies and employees alike benefit when ESOs are used effectively.

How are ESOPs implemented?

Companies can provide their employees with the option to buy a fixed number of the company’s shares at a price below market value by implementing an Employee Stock Option Scheme (ESOS). Employees gain from the change since they now hold shares in the business, which may increase their loyalty to the company.

The digital payments startup attributed its fourth quarter (Q4) loss to “temporary disruptions in business operations,” which marked a significant increase from the previous quarter’s reported consolidated loss of Rs 549.6 crore.

The Reserve Bank of India placed business limitations on Paytm Payments Banks, an allied company, in January, which caused a collapse in the company’s operational and financial services.

Remember, ESOs are a powerful tool, but understanding their nuances is essential. Companies and employees alike benefit when ESOs are used effectively. To learn more, checkout the link.

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