Sehaj Malotra & Shreya Saxena, LLB (Hons), O.P Jindal Global University, Sonipat
SEBI recently released a consultation paper on ‘Review of regulatory provisions related to Independent Directors’. The paper assessed the remuneration framework for Independent Directors and favored granting of Employee Stock Option Plans to Independent Directors to ensure they have more stake. Additionally, it sought views as to whether an extension of the ESOP vesting period to 5 years be allowed for independent directors as a replacement for performance-based commission and should there be a maximum limit on remuneration through ESOPs. This has rekindled the debate that ‘Is granting ESOP to Independent Directors viable?’ Through this post, an attempt is made to critically analyze the recommendations put forth in the consultation paper.
ESOP has been widely acknowledged as a mechanism to compensate employees and retain top-tier talents of the company by giving them the option of equity compensation. Section 2(37) of the Companies Act defines ESOP as options granted exclusively to directors, officers, and employees of the company, allowing them the future opportunity to buy company shares at a pre-determined price. 2 The incorporation of independent directors of a company is to ensure a crucial regulatory mechanism in corporate governance. They are brought in to offer an impartial third-party perspective to the board of directors and have no affiliation with the current management team.
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