Employee Stock Option Scheme: SECP issues Companies (Further Issue of Shares) Regulations

A public company may issue shares to its employees under Employee Stock Option Scheme. The Securities and Exchange Commission of Pakistan (SECP) on Monday issued Companies (Further Issue of Shares) Regulations, 2020 to specify conditions for issue of Employee Stock Option Scheme.

A public company may issue shares to employees pursuant to a Scheme under section 83 of the Act, subject to the following conditions:

Condition for issue of Employee Stock Option Scheme revealed that the articles of association of the company expressly provide and authorize the offer of scheme. The board shall form a compensation committee for administration and superintendence of the scheme provided that the chairman of the compensation committee of listed company shall be an independent director.

The board shall consider and resolve to offer the scheme and the aforesaid decision of board shall provide information required, as applicable. The offer of scheme is authorized by a special resolution; provided that separate special resolution shall be required for the following, where a scheme provides so grant of option to employees of a subsidiary or holding company; and grant of option to identified employees, during any one year, equal to or exceeding one per cent of the issued capital (excluding outstanding conversions) of the company at the time of grant of option.

In case shares are to be issued at discount to the face value, the company shall also obtain approval of shareholders and the Commission under section 82 of the Act. The company and compensation committee shall ensure that its executive directors and employees in senior management shall not participate in the deliberation or discussion of their own allocation of options under the scheme.

A company shall not vary the terms of a scheme in any manner which may be detrimental to the interests of its employees.

The SECP said there shall be a minimum period of one year between the grant of option and vesting of option. Where options are granted by a company under its scheme in lieu of options held by the same person under a scheme in another company, which has merged or amalgamated with the first mentioned company, the period during which the options granted by the merging or amalgamating company were held by him shall be adjusted against the minimum vesting period required under these regulations.

A company shall have the freedom to specify the lock-in period for the shares issued pursuant to an exercise of option.

An employee shall not have the right to receive any dividend or to vote or be entitled to rights of members in respect of option granted to him, till shares are issued to such employee on exercise of option. In case of failure to exercise the option, the options granted shall lapse and such lapsed options may be granted to other employees within a period of thirty days from the date of lapse, the SECP added.

If any options granted to employees in pursuance of a Scheme are outstanding at the time of public offering, the offering document shall disclose number of such outstanding options, exercise price, exercise period and impact on shareholding of the members in case all the outstanding options are exercised, the SECP added.