Switch to IFRS may force India Inc to review ESOPs
When India Inc switches accounting standards to IFRS, it may also have to review its employee stock option plans, to avoid an earnings hit, reports CNBC-TV18's Ashwin Mohan.
The traditional employee stock option model may soon become a thing of the past. With IFRS mandating that the cost of the stock option be reflected in the accounts, Indian corporates are now hunting for alternative employee compensation packages.
Jamil Khatri, Head - US GAAP & Accounting Services, KPMG said, “As compared to a low cost situation today, in the future every option that u grant even if it is at today's market price will result in a cost to the profit and loss account.”
And this cost will hit earnings.
Sai Venkateshwaran, IFRS Leader, Grant Thornton said, “It doesn't hit the networth of the company because there is a contra entry into the reserves, because it's that way a notional charge, but it does impact reported earnings and therefore the earnings of companies.”
Experts say charges cannot be avoided. but going in for restricted stock units may decrease the burden that ESOPs carry.
Khatri added, “What happens under that kind of model is as opposed to giving options at Rs 100, which is today's market value, the option is given at a discounted value, let’s say at Rs 2 per share. What that does is even though there is a cost to the p and l account, because the difference between 100 and 2 will be charged off the p an l, the employee will always remain motivated, because the option will always be in the money, given that it is given at such a steep discount.”
Source: https://www.moneycontrol.com/news/cnbc-tv18-comments/switch-to-ifrs-may-force-india-inc-to-review-esops_518502.html
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