Conditions unveiled: SECP allows public companies to issue shares to employees

The Securities and Exchange Commission of Pakistan (SECP) has allowed public companies to issue shares to their employees under the Employee Stock Option Scheme According to the Companies (Further Issue of Shares) Regulations, 2020, issued by the SECP here on Saturday, the commission has issued conditions for issue of Employee Stock Option Scheme.
Under the scheme, "option" means a right but not an obligation granted to an employee in pursuance of a scheme to apply for shares of a company at a pre- determined price.
A public company, may issue shares to employees pursuant to a scheme subject to the following conditions: first, the articles of association of the company expressly provides and authorizes the offer of scheme.
Second, 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. Third, the board shall consider and resolve to offer the scheme.
Fourth, the offer of scheme is authorised by a special resolution. Provided that separate special resolution shall be required for the following, where a scheme provides, so: (a) grant of option to employees of a subsidiary or holding company, and (b) grant of option to identified employees, during any one year, equal to or exceeding one percent 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.
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, and a company shall not vary the terms of a scheme in any manner, which may be detrimental to the interests of its employees.
Provided that a company may by special resolution in a general meeting vary the terms of a scheme offered pursuant to an earlier resolution but not yet exercised by its employees provided that such variation is not prejudicial to the interests of the option holders.
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, the SECP added.
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 30 days from the date of lapse.
An option granted to an employee shall not be transferable to any other person, except to an entitled employee of the company, the SECP added.