Structuring Equity, Benefits, and CSR Obligations for a Modern Workforce

A startup implementing the ESOP for the first time for its early employees is surprised to find out that the true challenge is not about deciding which employee should get how much, but whether the ESOP complies with the Companies Act and if the vesting of options stands, especially if that employee leaves after eighteen months. A listed company giving its employee a share option scheme based overseas is faced with a completely new range of questions, as the share-based employee benefit regulation by SEBI and foreign exchange regulations by RBI are not mere extensions of ESOP guidelines abroad; they come with their own set of requirements. A company providing its employees with health and wellness benefits along with PF and gratuity contribution would like to know whether it is truly in compliance with laws or being just generous. And the company that crosses the required financial threshold and has become subject to the compulsory CSR spends under the Companies Act is confident that it can spend 2% of its net profit without any difficulty but structuring the project, documenting approvals, and meeting disclosure is where things go wrong.

These three topics lie at very diverse stages in a company’s relationship with their people, equity compensation, benefits, and CSR, but all have one thing in common. These are all topics where the right decision that looks generous in giving out the options, creates a wellness program that staff will use, funds a CSR activity the firm is truly committed to, can inadvertently expose them to legal action if not set up right at the very start. A cap table that is complex because of poorly worded ESOP agreements can be tough to unravel after a few years have passed. Wellness programs that do not take into account maternity benefits or occupational health issues can expose the company to liability that they did not intend to have. A CSR initiative carried out in violation of the appropriate approvals of the board and/or reporting requirements can result in a failure of compliance audit even though the expenditure itself was completely legal.

The job of Corrida Legal is to ensure that the underlying legal structure behind the decisions is as solid as the purpose behind the decision. We draft and design ESOP policies, RSU structures, and phantom stock plans, assisting our clients in understanding which mechanism is suitable for them and not merely opting for the most common one, such was the case for us when we helped a startup between an ESOP pool and phantom stock depending upon the cap table needs of the company. When the issue of equity compensation spans into cross-border jurisdictions, we provide advice on both SEBI's share-based benefit regulations as well as RBI's foreign exchange control laws, because a compliance on the Indian side may still result in a violation of the other side's exchange control laws, and we assisted a technology company by providing them the necessary advice on how to make their option granting program to their engineering team in Singapore comply with both the jurisdictions.

Benefits packages pose similar issues of compliance, and we design our health insurance, gratuity, bonus, and flexible compensation schemes such that they fall in line with both the labour law as well as tax law by conducting regular compliance checks to ensure that what was right about the benefits package when it began is still true, taking into account the changing legal landscape governing fixed-term and gig economy contribution schemes under the Social Security Code. In the case of a logistics company expanding their PF and gratuity schemes to cover their gig economy employees for the very first time, we were approached because what was not a legal obligation just a few years ago became one under the law. Wellness programs, too, have their own issues of compliance, including maternity benefits, leave provisions, occupational safety, and we assist our clients in designing their corporate wellness policy in line with these.

CSR initiatives follow a similar process. We develop CSR policies and agreements for project implementations in line with the Companies Act, guide on what initiatives will truly qualify as CSR expenditure, and design partnership programs with NGOs and governmental partners in such a way that all aspects of reporting, board approval, and transparency come into play right from the start rather than piecing them together at the auditing stage, as was done in case of a manufacturing company setting up its first major skills development initiative under its CSR obligation. When an organization wishes to use its CSR spending as a means of investing in its workforce, up-skilling programs, and internships and apprenticeships, we help design such programs in a way that both CSR compliance and capability building happen simultaneously.