The concept of notional issues is trending nowadays, wherein the Corporates doesn’t share Equity with their Employees but an equivalent benefit in monetary form corresponding to the increase in the value of Company’s Stock over a period of time, is shared with the Employees. This is the concept of Cashless Mechanism of Employee Benefit Plans, more popularly termed as Stock Appreciation Rights / Phantom Stock Plans.

A breather for listed entities-both with existing Phantom Stock Plans/ SARs and also for those who are planning to come up with such kind of Employee Benefit Plans, has come in place on 28th July, 2015, when the Capital Market Regulator i.e. SEBI issued Informal Guidances on the Share Based Employee Benefit Regulations in the matters of M/s Saregama India Limited and M/s Mindtree Limited. The subject matter in both the cases was akin to a large extent. Both the applicants approached SEBI to seek its guidance on the fact that whether the new SBEB Regulations issued by the Board are applicable on Stock Appreciation Rights Scheme/ Phantom Stock Scheme framed by the Company pursuant to which the Promoters are entitled to receive Cash Appreciation linked with the growth of the Company.

The Board took the respective matters into consideration and issued Informal Guidances which said that the applicability of the Regulations is to be judged in terms of Regulation 1(4), which states that: The provisions of these regulations shall apply to any company whose shares are listed on a recognised stock exchange in India, and has a scheme “involving dealing in or subscribing to or purchasing securities of the company, directly or indirectly”.

Since the Regulator has opined that the issue of SARs & Phantoms which are to be settled in cash does not attract the applicability of SEBI norms, would add a new dimension to the ESOPs arena and now Corporates/ HR Executives can implement Phantoms/ SARs which do not involve dealing in the securities of the Company, without being required to comply with the requirements of SBEB Regulations.


We are of the view that the Informal Guidances issued by SEBI, will surely smoothen the way for the Corporates to come out with these more trendy forms of employee compensation.


Please note that the views expressed by SEBI are only with respect to the respective clarifications sought by the two applicants with respect to SEBI (Share Based Employee Benefit) Regulations, 2014 and do not affect the applicability of any other law or requirements of any other SEBI Regulations/ Guidelines or of the laws administered by any other authority. Further, this note has been made on the basis of publically available facts and other information. It is based on the analysis of the facts and our understanding and interpretation of applicable laws. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this note.



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