An ESOP is more than a number of options and a vesting schedule. The design decides what the employee must achieve, what the company gives up if the target is missed or met, and how the award is valued in the accounts. Indian listed companies now grant options and share units linked to sales growth, return on capital employed, free cash flow, EBIT, market share and, in a few cases, relative shareholder return. This guide maps those designs using the scheme documents and SEBI disclosures of Indian companies, shows what those documents do and do not reveal, and sets out the Ind AS 102, SEBI and Companies Act points that decide how each design must be valued and approved.
Key takeaways
- Time-based vesting is still the baseline. Of the 12 Indian schemes and grant sets reviewed, three vest on time alone.
- Most performance designs in Indian listed companies use internal metrics. Tata Consumer names sales growth, RoCE and free cash flow. Tata Motors names market share, EBIT and free cash flow. Neither discloses weights, targets or a payout curve.
- Infosys is the only company in this review with a disclosed relative TSR design. Its 2019 RSU plan tests relative TSR against selected industry peers and indices, and its May 2025 CEO grant uses a cumulative relative TSR condition without naming the peer group.
- No Indian scheme reviewed grants options priced above market, and none indexes the exercise price to beta or a market index. Premium-priced and beta-indexed designs appear in the literature, not in the Indian filings we could read.
- Under Ind AS 102, market conditions are reflected in the grant-date fair value and are not trued up, while non-market performance conditions adjust the expense over the vesting period. Classify each Indian design before the first accounting period.
Why ESOP Design Goes Beyond Time-Based Vesting
Most Indian startups grant options that vest over four years with a one-year cliff. That structure rewards staying, and it is simple to administer. It does not reward a result. A company that wants employees to lift revenue, margin or share value has to attach a condition to the grant, and every condition creates a new question: who measures it, against which target, over what period, and what the award is worth if the target is only partly met.
Indian listed companies have answered those questions in different ways. Tata Consumer and Tata Motors measure the company’s own results over three financial years. Infosys measures the company against its peers and against domestic and global indices. HUL lists market capitalisation among the metrics its committee may use. Titan and Vedanta leave the detailed metrics to the committee, and Vedanta’s 2026 scheme does not publish them. Each approach needs different evidence, and each is harder to run in an unlisted company, where no share price exists between Valuations.
A performance condition is only as good as its measurement. Before a grant is approved, write down the metric, its source, the audited figure that proves it, the Valuation date for any share-value test, and the treatment if the company is acquired or listed during the performance period.
The ESOP Design Map: Eight Structures and What Each One Rewards
The table below lists the eight structures found in the Indian sources we reviewed. For each one it shows what the award rewards, the Indian example where we found one, and how far that example can be relied on. Where a design appears only in commentary, or where the Indian disclosure names a metric without its target, the table says so.
| Design | What it rewards | Indian example in the sources | How far it can be relied on |
|---|---|---|---|
| Time-based vesting | Staying with the company | LTIMindtree ESOP Scheme 2015 vests 25% of each grant a year, starting one year after grant. Emcure ESOS 2013 vests within one to five years of grant | Stated in the scheme disclosures. Common practice |
| Internal financial or operating metrics | Sales growth, RoCE, free cash flow, EBIT and market share | Tata Consumer performance share units (2021 and 2024 schemes): sales growth, RoCE and free cash flow over three financial years. Tata Motors 2022 grant: market share, EBIT and free cash flow. Sagility’s 2026 scheme, per press coverage: at least 70% on core financial criteria | Metrics are named in scheme text. Weights, targets and payout curves are not disclosed. Sagility is press coverage only |
| Relative TSR | Outperformance against peers or indices | Infosys Expanded Stock Ownership Program 2019: RSUs vest on relative TSR against selected industry peers and domestic and global indices, combined with operating metrics. CEO grant of May 2025: 33,183 RSUs under a cumulative relative TSR condition | Confirmed in Infosys’s 2026 SEBI disclosure. The CEO grant does not name its peer group or measurement period |
| Market capitalisation named as a metric | Growth in equity value | HUL Performance Share Plan Scheme 2024 lists market capitalisation, revenue, EBITDA and return on capital employed as metrics the committee may use | Named as a possible metric only. No tranche, target or grant-level use is disclosed |
| Operational or ESG milestone | Non-financial outcomes set by the board | Infosys CEO grant of May 2025: 13,273 RSUs (fair value of ₹2 crore) tied to ESG milestones determined by the board | The milestones are not published. Confirmed only as a grant component |
| Floor-priced or premium-priced options | Share price rise above the grant-day value | No Indian grant above market was found. Emcure ESOS 2013 prices options at the higher of the grant-day closing price and book value per share. LTIMindtree ESOP 2021 Series B is granted at the six-week average price | Pricing floors are documented. A premium above market is not documented in any Indian disclosure reviewed |
| Indexed or beta-linked options | Outperformance against the market, net of market movement | No Indian scheme reviewed indexes the exercise price to a market index or to beta | Discussed in the literature. Not a verified Indian practice |
| Valuation-linked hurdle (unlisted) | Growth in fair market value between Valuation dates | No published unlisted Indian scheme with this hurdle was found. An advisory-note sample gives full vesting if fair market value doubles by year five | Illustrative only, from secondary commentary |
Five of the eight structures have a named Indian scheme behind them. Only the metrics in the Tata Consumer, Tata Motors and Infosys disclosures come from scheme documents or SEBI filings that name the measure, and only Infosys confirms a market-relative test. Premium-priced, indexed and unlisted Valuation-linked designs have no verified listed Indian example in this review. Before copying any example, ask whether the target, the weight and the payout curve are disclosed, or only the metric name.
What the Indian evidence says about design
- Metrics are published more often than targets. Tata Consumer and Tata Motors name their metrics, but neither publishes weights, thresholds or payout curves in the disclosures reviewed.
- Relative TSR is rare in these disclosures. Infosys is the only listed company in this review with a confirmed relative TSR design, and its CEO grant does not name the peer group.
- Committees keep discretion. Tata Consumer’s committee may adjust vesting by ±20% for the quality of results and may change the performance parameters before a three-year block starts. Titan’s committee may accelerate vesting or modify the schedule.
- Fair value follows the grant. Tata Consumer values its 2024 PSUs at fair value on 100% achievement and expenses them straight-line over the vesting period, so the accounting expense is set at grant and revised only for non-market conditions.
Eight ESOP Design Drivers and What to Take Care of in Each
The drivers are the design decisions that a board, a founder or an investor must settle before a grant is approved. Each one has three parts: why it changes the award, what must be written into the scheme, and what the Indian evidence shows. Where the evidence is thin, or where a company names a metric without its target, we say so. A design choice that cannot be explained in the scheme text will be argued about at exit.
1. Time-based or performance-based vesting: which one fits the goal?
The vesting condition decides what the employee is paid for. Time-based vesting pays for presence, which protects retention. Performance vesting pays for a measured result, which aligns effort with a target. The choice also changes the accounting: under Ind AS 102 a non-market performance condition alters the expense if the number of awards expected to vest changes.
What to take care of
- Decide the goal first: retention, growth or value creation. Then choose the vesting condition that tests that goal.
- Keep a time element in most performance grants, so that a missed target does not leave an employee with nothing after years of service.
- Set a threshold below which no awards vest, a target that earns the base award, and a maximum above which extra performance earns nothing more.
- Write the performance period and the measurement date into the scheme and the grant letter, not into a board note.
- Confirm that the scheme, the board resolution and any shareholder approval cover performance conditions expressly.
LTIMindtree’s ESOP Scheme 2015 is time-based only: vesting starts one year after grant at 25% of each grant a year, with no performance or share-price condition. Emcure’s ESOS 2013 vests between one and five years from grant, also without a performance test.
Tata Consumer’s PSUs must vest not earlier than one year and within three years of grant, based on performance over the three preceding financial years. Titan’s 2023 scheme sets a performance period of three financial years from 1 April 2023, and units cannot vest in less than one year from grant.
2. Which financial metrics work for ESOP vesting: sales growth, RoCE, cash flow or EBIT?
Financial metrics are easy to explain and easy to audit, but they can be moved by accounting choices. A sales target can be reached by changing the timing of invoices. An EBIT target depends on which costs the company treats as one-off. The definition in the scheme decides whether the target has been met, so the definition is often more important than the number.
What to take care of
- Define each metric in the scheme: the revenue recognition basis, the adjustments and the audited source figure.
- Pair profit measures with a measure that accounting cannot easily move, such as free cash flow or market share.
- Set threshold, target and maximum for each metric, and state the payout between them.
- Use the same period as the audited accounts. Do not test a current-year target against a trailing measure.
- State whether acquisitions, one-off items and stock-based compensation are included or excluded from each metric.
Tata Consumer’s scheme names sales growth, RoCE and free cash flows as examples, measured over the three preceding financial years on audited consolidated results. Its 2021 and 2024 grants share these metrics. Weights and targets are not disclosed.
Tata Motors’ 2022 PSU grant names market share, EBIT and free cash flow, measured on standalone financials. HUL’s 2024 plan lists market capitalisation, revenue, EBITDA and return on capital employed, with a performance factor that can swing from 0% to 200%. Sagility’s 2026 scheme, reported in press coverage of an NSE filing, puts at least 70% on core financial parameters, but its targets are not published.
3. How does relative TSR vesting work, and which peer group should you use?
Relative TSR pays for outperformance against a comparison group, so a rising market does not by itself earn the award. The payout depends on the peer group and the measurement window. A small or poorly chosen peer group can turn the result into a matter of chance, and an index dominated by a few large companies can make percentile ranks hard to interpret.
What to take care of
- Choose a peer group the board can defend, such as selected industry peers and domestic and global indices, as Infosys’s 2019 plan does. State what happens if a peer is acquired or delisted.
- Write the averaging period and the percentile thresholds into the scheme. The Indian disclosures we reviewed do not state either.
- Consider a modifier rather than full weighting if the board wants operating metrics to stay in charge of the payout. Infosys combines relative TSR with operating metrics in its 2019 plan.
- For an unlisted company, relative TSR cannot be measured from a traded share price. Use a Valuation-based peer comparison and say so in the scheme.
- Record the peer group in the grant letter, so that a later change is visible to the Nomination and Remuneration Committee and the auditor.
Infosys’s Expanded Stock Ownership Program 2019 vests RSUs on annual performance parameters that combine relative TSR against selected industry peers and domestic and global indices with operating metrics, over one to three years from grant.
The CEO’s grant of May 2025 includes 33,183 RSUs under a cumulative relative TSR condition, with a fair value of ₹5 crore. Infosys’s 2026 SEBI disclosure describes the condition as running “over the years and as determined by the Board”. It does not name the peer group or the measurement period, so the grant cannot be recalculated from the disclosure alone.
4. How do market-capitalisation milestones work in Indian companies?
A market-capitalisation milestone pays only when the whole company’s equity value reaches a set level. It is simple to explain to shareholders, but a single spike in the share price could trigger it. A design that uses it should average the value over a period and tie it to operational results, so that one day’s movement cannot decide the payout.
What to take care of
- Average the market capitalisation over at least 30 days, and state the determination date and the currency basis.
- Link each market-capitalisation tranche to operational milestones, so that the share price cannot be the only route to value.
- Define how the milestone is adjusted for share issues, buybacks and dividends during the period.
- For an unlisted company, replace market capitalisation with a fair market value that a registered valuer determines on each test date.
- Set a service requirement and a post-milestone vesting date, so that the award cannot vest on the day a milestone is first reached.
HUL’s disclosure lists market capitalisation, revenue, EBITDA and return on capital employed as metrics the committee may use, together with a performance factor from 0% to 200%. It does not give a target, a tranche ladder or an averaging period for market capitalisation.
The disclosure does not say that market capitalisation was used in any grant. Until the grant letter is reviewed, treat the metric as named, not as a tested design. No Indian listed scheme reviewed uses a multi-tranche market-capitalisation ladder with targets published.
5. Premium-priced options: when does an exercise price above grant value make sense?
A premium-priced option sets the exercise price above the market value on the grant date. The employee gains only if the share price rises by the premium and then further. None of the Indian disclosures we reviewed grants options above market. Pricing floors are more common: the exercise price is set at face value, at market, or at the higher of market price and book value.
What to take care of
- Do not describe a grant as premium-priced unless the disclosure gives the grant-date price and the exercise price for the same grant.
- Set any floor as a fixed rule, such as the higher of closing price and book value per share, and state who can change it.
- Use an averaging window for the market reference where the price is volatile, as LTIMindtree’s Series B grants do with a six-week average.
- In an unlisted company, fix the grant-day value through an independent Valuation, and set any premium on that value.
- Confirm the tax treatment on exercise under the Income-tax Rules before grant, because the taxable value depends on fair market value at exercise.
Emcure’s ESOS 2013 prices vested options at the higher of the closing market price on the grant date and the book value per share in the last audited balance sheet. Grants made between May 2021 and October 2022 carried exercise prices from ₹862.07 to ₹1,008.21.
Lupin’s disclosure for FY 2025-26 shows options granted at a weighted average exercise price of ₹2, the face value, which is below market. LTIMindtree’s ESOP 2021 Series B is granted at market value, defined as the average price over the last six weeks. No Indian grant above market price was found in the disclosures reviewed.
6. Do companies index ESOP exercise prices to beta or the market?
An indexed option moves the exercise price with a market index, so the employee is rewarded for outperformance rather than for market movement. A beta-adjusted design would also allow for the company’s sensitivity to the market. The idea is discussed in the research literature, but none of the Indian listed disclosures we reviewed shows an index-linked or beta-linked exercise price. Where a board wants a market-relative test, the disclosed Indian route is relative TSR, as in driver 3.
What to take care of
- Do not describe a beta-indexed grant as market practice unless a filing shows it. None of the Indian disclosures reviewed does.
- If the board wants a market-relative incentive, test the relative TSR design in driver 3 first, because Infosys discloses one.
- Calculate the cost of indexation before approval. An index raises the exercise price and changes the fair value of the option.
- Obtain the accounting treatment from the auditor, because an index element changes the fair value and the vesting analysis.
- Keep the scheme simple enough that the board, the employees and the auditor can each recalculate the payout from the same inputs.
Across the schemes and grant sets reviewed (Infosys, HUL, Tata Consumer, Tata Motors, Titan, LTIMindtree, Emcure and Lupin), no exercise price is indexed to a market index or to beta. Infosys’s relative TSR RSUs are the closest disclosed design, because they reward performance against peers without changing the exercise price.
This is a finding about the disclosures we could read, not a legal prohibition. A listed company may have an indexed grant that is not in the documents reviewed, so the board should confirm the position against its own scheme history before describing its design as conventional.
7. Milestone structures: how many targets must be met, and in what order?
A milestone grant pays out in steps. Indian schemes often split an award into components, each tested on a different measure, or adjust the payout after the performance period. That choice sets how hard each component is to earn and how much the employee bears when one target is missed. A poorly calibrated structure can make early components easy and later ones impossible to reach.
What to take care of
- Separate components the employee can influence from those that depend on the market or on board decisions, and fix the weight of each.
- Set the adjustment band, such as ±20%, and the cap, such as 120% of the grant, before the grant is made.
- Require a minimum service period and a determination date for each component.
- Decide how a change in control is treated before the grant, not during a sale process.
- Set a sunset date after which unearned components lapse, so that the liability does not stay open indefinitely.
Infosys’s FY 2026 disclosure lists five separate CEO grants: 2,30,621 RSUs under the 2015 plan with performance targets not specified (fair value ₹34.75 crore), 13,273 ESG milestone RSUs (₹2 crore), 33,183 relative TSR RSUs (₹5 crore), 18,132 time-based RSUs vesting in three equal annual instalments (₹3 crore), and 66,366 performance RSUs under the 2019 plan (₹10 crore).
Tata Consumer’s PSUs can be adjusted by ±20% for the quality of results, and vested units cannot exceed 120% of the units granted to any employee.
8. Holding periods, clawbacks and leaver rules: what happens after vesting?
The value of a performance grant depends on what the employee can do after vesting and what happens if they leave. Leaver and change-in-control rules often matter more to the outcome than the headline target, because they decide who keeps the award when the company’s circumstances change.
What to take care of
- Set a holding period on vested shares or options, and state the exceptions for tax, change in control and similar events.
- Define good leaver and bad leaver, and the treatment of earned but unvested awards for each category.
- Include a clawback where the audited figures on which a target was tested are later restated.
- Fix the Valuation basis and the date for any change-in-control payment before the grant is made.
- For an unlisted company, require a valuer’s report on each vesting or acceleration date, as set out in driver 4 and the Indian rules section.
Titan’s 2023 scheme vests unvested units immediately on death or permanent incapacity, keeps them vesting on the original schedule on retirement, and lets the committee accelerate vesting for a good leaver. Units lapse when a resignation or termination notice is served, and all units can be terminated for misconduct.
Tata Consumer’s PSUs lapse for employees who leave before vesting. The Tata Motors 2022 letter sets the exercise period at 12 months from vesting, which the committee may extend by two years.
Ind AS 102, SEBI and Companies Act Rules: The Indian Rules for Performance ESOPs
A performance ESOP in India sits under three rule sets at once. Ind AS 102 decides how the award is valued and expensed in the accounts. The SEBI share-based employee benefits regulations apply to listed companies. The Companies Act and the Share Capital Rules apply to unlisted companies, which have no share price to test a hurdle against. Each rule set answers a different question, and a design that works under one can fail under another.
How does Ind AS 102 treat market and non-market performance conditions?
Under Ind AS 102, the expense for an employee share award is measured at grant-date fair value and recognised over the vesting period. The treatment depends on the type of condition. A market condition, such as a share-price or relative TSR target, is reflected in the grant-date fair value, and the expense is not revised later if the market condition is not met. A non-market performance condition, such as a revenue or EBITDA target, is not part of the fair value. Instead, the number of awards expected to vest is revised each period, and the cumulative expense is adjusted.
These two rules explain why a market-capitalisation tranche and a revenue-based performance unit produce very different expense patterns. For a market-linked award, the Valuation model carries the probability of the outcome at grant, and the expense does not reverse if the target is missed. For a revenue-linked award, the expense follows management’s estimate of the outcome and is trued up as that estimate changes. Models for market conditions are commonly Monte Carlo or lattice models, and the choice of model must be documented.
Figures to confirm before use
The advisory note we reviewed on accounting for performance ESOPs in unlisted companies recommends Monte Carlo modelling for hurdles and gives a premium of 10% to 20% for hurdles without a source. Its worked journal entry does not reconcile: the formula shown gives ₹56,250, while the entry states ₹22,500. Neither figure should be copied into an accounting paper without rebuilding the calculation from the standard.
What do the SEBI SBEB Regulations 2021 say about performance-linked ESOPs?
The SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 govern employee schemes of listed companies. The commentary we reviewed does not address performance-linked vesting conditions, and it does not state a minimum vesting period. It does state that options vest on the death of the employee with immediate effect under Regulation 9(4), and that unvested awards lapse on resignation or termination, subject to exceptions. It also notes that the scheme must set out how the exercise price is funded, under Regulation 5(3) and Part B of Schedule I.
A performance condition therefore has to be defined in the scheme itself. The board should not assume that the regulations set the condition, the measurement period or the treatment of leavers for a performance award.
Before a listed-company performance scheme is approved
- Confirm that the scheme text sets out each performance condition, its measurement period and its source figure.
- Confirm the treatment of performance awards on death, resignation, termination and a change in control.
- Confirm the shareholder approval and the disclosures that the scheme and each grant require in the annual report.
- Check the criteria against the scheme itself, not against a board note or a press summary of the scheme.
How do the Companies Act rules apply to ESOPs in an unlisted company?
An unlisted company grants employee options under the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014, not under the listed-company regime. The commentary we reviewed cites Section 62(1)(b) for the power to issue options, a special resolution to approve the scheme, and filings on Form MGT-14 for the explanatory statement and on Form PAS-3 for the allotment, each within 30 days. It also recommends a registered valuer for fair market value, which matters for any market-linked hurdle.
The commentary further states that total options are capped at 15% of post-issue paid-up capital. We have not verified that cap against the text of Rule 12, so it should not be used to size a grant until the rule text and any later amendment have been read.
Treat the 15% cap as unverified
The 15% figure appears in secondary commentary only. Check Rule 12 of the Share Capital Rules, 2014, and any amendment, before a grant is sized or a board paper repeats it.
How do you test a Valuation-linked hurdle in an unlisted company?
An unlisted company has no traded share price, so any hurdle that depends on share value must use a fair market value at each test date. That Valuation must follow an accepted method, be documented by a registered valuer, and be dated on the same basis as the performance period. The advisory sample we reviewed gives full vesting if fair market value doubles by year five. That is a simple target to state, but a demanding one to test, because the value at year five will be disputed if the method changes between the grant and the test.
The grant should therefore fix the Valuation method, the valuer and the test dates in advance. It should also say what happens if the company is sold or raises a new round before a test date, since either event produces a value that is not on the planned schedule.
What to take care of
- Fix the Valuation method in the scheme, including any weighting between approaches, such as a revenue multiple and a discounted cash flow.
- Set the Valuation dates, and the rule for an interim Valuation on an acquisition or a new funding round.
- Use the same valuer and basis for each test date, or state the rule for changing either.
- Keep each Valuation report on the performance file, so that the auditor can trace the vesting outcome to a documented value.
Watch: How ESOP Design Structures Work in India
Before you read the step-by-step design process, the video below walks through the structures in this guide and the rules that shape them. It is a quick way to see how a performance ESOP is put together before you choose a design.
What the video covers
The eight design drivers, the Indian rules for performance conditions under Ind AS 102, SEBI and the Companies Act, and how each design is classified before the first accounting period.
How to Design a Performance ESOP Step by Step
A performance ESOP is designed in a sequence. The goal comes first, because it decides which condition to use. The metric and its definition come next, then the thresholds, then the Valuation or market basis that tests the metric. The accounting treatment under Ind AS 102 follows from those choices, and the holding, leaver and approval terms come last. Reversing the order is a common reason performance schemes are amended after grant.
Decision Flowchart: Which ESOP Design Fits Your Company?
Once the goal is set, the company needs a rule for choosing the design. The flowchart asks three questions in order. The first asks whether the shares are listed, because a listed company can test a market-linked hurdle against a traded price. The second asks whether a fair value is available on each test date, which is the basis for a Valuation-linked hurdle in an unlisted company. The third asks whether the targets are audited and within management’s control, because a target that cannot be tested should not carry the award.
The flowchart is a design tool. It does not decide the Ind AS 102 treatment or the legal approval route, and both must be checked for the chosen design before a grant is made.
Six checks before a performance grant is approved
Set the goal
Decide whether the grant is for retention, growth or value creation, and write the goal into the scheme before choosing a metric.
Define the metric
Fix the definition, source figure and audit trail for each revenue, EBITDA, TSR or value measure, including the adjustments.
Set the payout curve
State the threshold, target and maximum for each tranche, and the payout between them, with the measurement period.
Fix the Valuation or market basis
For a listed company, choose the peer group and averaging window. For an unlisted company, fix the Valuation method, valuer and test dates.
Value under Ind AS 102
Classify each condition as market or non-market, set the Valuation model for market conditions, and set the expense true-up for the rest.
Set holding, leaver and approvals
Fix the holding period, good and bad leaver terms, clawback and change-in-control rules, then complete the shareholder and filing steps.
Designing a Performance ESOP for Your Company?
Before a grant is approved, the metric definitions, the Valuation basis for any share-value test, the Ind AS 102 treatment and the approval route usually decide whether the scheme will hold up in an audit or at exit. Elite Valuation can review the design, value the awards under Ind AS 102 and prepare the Valuation reports that unlisted companies need on each test date.
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Common ESOP Design Mistakes and How to Fix Them
The mistakes below recur in Indian performance schemes, whether the company is a listed group, a growth-stage startup or a founder-led business. Each card sets out what goes wrong, what it costs, and the fix that can be put in place before the grant.
Copying a headline design without its definitions
A relative TSR or market-capitalisation design is copied from a large company’s filing, without the metric definitions, the peer group or the adjustments.
The target means something different in the new scheme, and employees and the board read the same award in different ways.
Write each metric’s definition, source figure, peer group and adjustments into the scheme, and test the design on the company’s own figures before approval.
Using a share-price hurdle in an unlisted company
A market-capitalisation or share-price target is adopted for an unlisted company, with no fixed Valuation method or test date.
No reliable value exists between Valuations, and the vesting outcome is disputed at the moment of exit, when the stakes are highest.
Use a registered valuer’s fair market value on fixed test dates, with a fixed method and a rule for interim Valuations on an acquisition or a round.
Presenting beta-indexed options as market practice
An indexed or beta-linked option is described as a common design, although the sources reviewed show no listed company disclosing one.
The board approves a costly design that is hard to explain to employees and the auditor, and it cannot be benchmarked.
Use relative TSR or a modifier if the aim is a market-neutral reward, cost the index element before approval, and state clearly that the design is not a disclosed practice.
Treating market and non-market conditions the same way
A revenue target and a share-price target are both accounted for with the same expense method.
The expense is misstated, because a market condition is not trued up under Ind AS 102 and a non-market condition is.
Classify each condition, document the Valuation model for market conditions, and set the true-up rule for non-market conditions before the first accounting period.
Setting one all-or-nothing hurdle
A single target pays the full award if met and nothing if missed, with no threshold or payout curve.
A near miss pays nothing, the team disengages when the target looks out of reach, and the board is pressed to move the goal after grant.
Set a threshold, a target and a maximum, with a stated payout between them, and publish the payout curve in the scheme. Most Indian schemes reviewed do not disclose this curve, so this page cannot supply one.
Letting the award vest on the day a milestone is met
An award vests as soon as the target is first reached, with no post-milestone service date or holding period.
A short-term peak can produce a large payout and an exit, so the incentive is aimed at one date rather than sustained value.
Add a minimum vesting period, a post-milestone service date and a holding period on vested shares. Tata Consumer’s PSUs, for example, cannot vest in under one year and carry a 12-month exercise window after vesting. State the exceptions for tax and change in control.
Sizing the pool on an unverified cap
The grant is sized on a 15% pool limit taken from secondary commentary, without checking the rule text or the company’s existing pool.
The grant may exceed the permitted limit, and the award has to be reversed or amended after the employees have been told.
Read Rule 12 of the Share Capital Rules, 2014 and any amendment, check the existing pool and the fully diluted count, and obtain written sign-off before the grant letters are issued.
Closing summary
What should a founder, board or investor take from the eight design drivers?
An ESOP design is a set of answers to four questions: what the employee must achieve, how that achievement is measured, how the award is valued, and what happens when the employee leaves or the company is sold. Time-based vesting answers the first question with presence. Performance designs answer it with a result, and the result is only as good as its definition, its source figure and its test date.
The Indian disclosures reviewed show a clear pattern. Tata Consumer and Tata Motors name internal metrics such as sales growth, RoCE, free cash flow, EBIT and market share. Titan sets a three-year performance period. HUL lists market capitalisation as one possible metric. Infosys is the only company in this review with a disclosed relative TSR design, and its CEO grant does not name the peer group. None of the schemes reviewed grants options above market or indexes the exercise price to beta.
For an Indian company, the accounting and the legal route decide the design. Ind AS 102 treats market conditions and non-market conditions differently, so a share-price hurdle and a sales hurdle cannot share one expense method. For an unlisted company, a market-linked hurdle needs a registered valuer’s fair value on fixed test dates, and the 15% pool cap must be read from the rule text before a grant is sized.
Need an ESOP Design Review or a Valuation for Your Scheme?
Elite Valuation prepares ESOP Valuations under Ind AS 102, reviews performance and market-linked designs, and prepares the fair market value reports that unlisted companies need on each vesting or test date. A short scoping discussion usually shows which design choices will matter most for your company’s accounts and its next round.
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Frequently asked questions
What are the main types of ESOP design used by Indian companies?
The Indian schemes reviewed use time-based vesting, internal performance metrics such as sales growth, RoCE, free cash flow and EBIT, relative TSR against peers and indices, operational or ESG milestones set by the board, and pricing floors such as the higher of market price and book value. Premium-priced options and beta-indexed options were not found in the Indian disclosures reviewed.
What is a performance stock unit, and how does it differ from an option?
A performance stock unit vests only if the company meets the performance criteria set by the committee, and the number that vests can rise or fall with the result. Tata Consumer’s PSUs carry an exercise price of Re 1, the face value, so they behave like options with a near-zero strike that vest on performance. An ESOP option, by contrast, is usually granted at or above market value and vests on time. Tata Motors’ PSUs also carry a face-value exercise price of ₹2.
What is relative TSR in an ESOP, and does any Indian company use it?
Relative TSR compares the total shareholder return of the company with that of a peer group or index over the performance period. Infosys’s Expanded Stock Ownership Program 2019 vests RSUs on relative TSR against selected industry peers and domestic and global indices, combined with operating metrics. Its May 2025 CEO grant of 33,183 RSUs uses a cumulative relative TSR condition, but the peer group and measurement period are not named in the disclosure.
Can an unlisted Indian startup use market-capitalisation ESOPs?
Not directly, because an unlisted company has no traded share price. The equivalent is a Valuation-linked hurdle, under which a registered valuer determines fair market value on fixed test dates, using a method fixed in the scheme. We did not find a published unlisted Indian scheme with such a hurdle. The advisory-note sample we reviewed gives full vesting if fair market value doubles by year five, which is illustrative only and not a company disclosure.
Do Indian listed companies use beta-linked ESOPs?
We did not find a listed Indian company that discloses a beta-linked or index-linked exercise price in the schemes and SEBI disclosures reviewed. Relative TSR is the disclosed route for rewarding performance against the market. Infosys’s 2019 plan is one example, and it does not change the exercise price.
How does Ind AS 102 treat performance ESOPs?
Under Ind AS 102 the grant-date fair value is recognised over the vesting period. A market condition, such as a share-price or relative TSR target, is reflected in that fair value and is not trued up if it is missed. A non-market performance condition, such as a sales or EBIT target, is not part of the fair value, and the expected number of awards that vest is revised each period. Tata Consumer values its PSUs on 100% achievement of the performance conditions and expenses them straight-line over the vesting period. The paragraph references should be checked against the notified standard.
Have Indian companies used premium-priced options?
Not in the disclosures we reviewed. Emcure’s ESOS 2013 prices options at the higher of the grant-day closing price and book value per share, which is a floor rather than a premium. Lupin’s FY 2025-26 grants carry the face value of ₹2 as the weighted average exercise price, and LTIMindtree’s Series B grants are priced at a six-week average. We found no Indian grant priced above market, so this article does not present one as an example.
What do Tata Consumer’s PSU terms say about performance and vesting?
The committee may adjust granted PSUs by ±20% for the quality of results, and vested units cannot exceed 120% of the units granted. Units vest within three years of grant, and not earlier than one year. The committee may change the performance parameters before a three-year block starts. The 2024 grant of 2,60,280 PSUs at Rs 1,136.70 has an aggregate fair value of ₹62.16 crore on 100% achievement. The FY 2025-26 option table does not reconcile, so only the stated figures should be quoted.
What do the SEBI SBEB Regulations 2021 say about performance vesting?
The SEBI Share Based Employee Benefits and Sweat Equity Regulations, 2021 govern employee schemes of listed companies. The commentary reviewed is silent on performance-linked vesting conditions and does not state a minimum vesting period. It does address vesting on death under Regulation 9(4) and the funding of the exercise price under Regulation 5(3). The performance conditions therefore have to be defined in the scheme itself, and the notified text should be read before a scheme is approved.
Is there a 15% limit on the ESOP pool for an unlisted company?
Secondary commentary states that total options are capped at 15% of post-issue paid-up capital for an unlisted company. We have not verified that figure against Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 or any later amendment. Until the rule text has been checked, the cap should not be used to size a grant, and the existing pool and the fully diluted count should be reconciled before any grant letter is issued.
Sources
Scheme details are taken from the scheme documents, shareholder letters and SEBI disclosures that the named companies filed or published. Sagility and Vedanta details come from press coverage and are not primary sources. Commentary on Ind AS 102, the SEBI regulations and the Companies Act is secondary and must be checked against the notified text. Derived figures, including the chart heights, are arithmetic on the disclosed numbers. Where a company’s own tables do not reconcile, the page quotes only the stated figures.
- Tata Consumer Products Limited, Share-based Long Term Incentive Scheme 2021 (scheme text, PSU clauses on performance parameters, vesting and NRC discretion): https://www.tataconsumer.com/sites/g/files/gfwrlq316/files/2025-02/TCPL_Share_based_Long_Term_Incentive_Scheme_2021.pdf
- Tata Consumer Products Limited, Annual disclosures FY2024 on performance share units (grant prices, fair value, metrics): https://www.tataconsumer.com/sites/g/files/gfwrlq316/files/2024-05/annual-disclosures-fy2024%20-performance-share-units.pdf
- Tata Consumer Products Limited, Annual disclosures FY2026 on performance share units (Scheme 2024 grants, metrics, fair value): https://www.tataconsumer.com/sites/g/files/gfwrlq316/files/2026-05/ANNUAL_DISCLOSURES_FY2026_PERFORMANCE_SHARE_UNITS.pdf
- Tata Motors Limited, letter to BSE and NSE dated 30 August 2022 (PSU grant under the Share-based Long Term Incentive Scheme 2021; metrics, exercise price and exercise period): https://bseindia.com/xml-data/corpfiling/AttachHis/50a9655b-70c8-4a6a-92da-4585f899ee31.pdf
- Titan Company Limited, Scheme 2023 (performance parameters, performance period, vesting, leaver and misconduct clauses): https://www.titancompany.in/sites/default/files/2025-Jan/Final_Scheme%202023.pdf
- Infosys Limited, Disclosures pursuant to the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, FY2026 (Expanded Stock Ownership Program 2019, CEO grants, relative TSR and fair value): https://www.infosys.com/investors/reports-filings/documents/disclosures-pursuant-sebi-regulations2026.pdf
- Hindustan Unilever Limited, Disclosure under SEBI SBEB Regulations 2021, March 2026 (Performance Share Plan Scheme 2024, metrics and performance factor): https://www.hul.co.in/files/disclosure-under-sebi-sbeb-regulations-2021-mar26.pdf
- LTIMindtree Limited, ESOP Disclosure FY25 (ESOP Scheme 2015 and 2021, vesting, Series B pricing): https://www.ltimindtree.com/wp-content/uploads/2025/05/ESOP-Disclosure-FY25.pdf
- Emcure Pharmaceuticals Limited, Disclosure under Regulation 14 of the SEBI SBEB Regulations for FY 2024-25 (ESOS 2013 grants and pricing formula): https://www.emcure.com/wp-content/uploads/2025/08/Disclosure-under-Regulation-14-of-SEBI-SBEB-Regulations-for-FY-2024-25-1.pdf
- Lupin Limited, SEBI SBEB disclosure for FY 2025-26 (grants below market, face-value exercise price, vesting condition): https://www.lupin.com/uploads/2_Disclosure_SEBI_SBEBSE_86d304e57b.pdf
- Business Upturn, Sagility outlines performance criteria for ESOP scheme 2026 (press coverage of an NSE filing; not a primary source): https://www.businessupturn.com/business/sagility-outlines-performance-criteria-for-esop-scheme-2026/
- ThePeoplesBoard, Vedanta ESOS 2026 ties vesting wholly to performance (press coverage of the scheme approved on 30 July 2026; metrics not disclosed; not a primary source): https://www.thepeoplesboard.com/?p=21660
- Viproinfoline, Accounting for long-term performance-linked ESOPs in unlisted Indian companies (April 2026 advisory note; not a primary source): https://www.viproinfoline.com/2026/04/accounting-long-term-performance-esops-unlisted-india.html
- Corporate Professionals, Analysis of newly promulgated SEBI share-based employee benefits and sweat equity regulations 2021 (secondary commentary): https://www.corporateprofessionals.com/articles/analysis-of-newly-promulgated-sebi-share-based-employee-benefits-and-sweat-equity-regulations-2021/
- Indian Accounting Standard (Ind AS) 102, Share-based Payment, Ministry of Corporate Affairs, India. Paragraph references must be checked against the notified standard.
- Companies Act, 2013, Section 62, and the Companies (Share Capital and Debentures) Rules, 2014, Rule 12, Ministry of Corporate Affairs, India. The 15% cap in the commentary is unverified.
- Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, as amended.
Disclaimer. This article is general information only. It is not legal, tax or investment advice, and it is not a Valuation of any company or of any ESOP grant. Company figures come from scheme documents, SEBI disclosures and press coverage, and may differ from the full scheme or award text. Derived figures are arithmetic on disclosed numbers. The Ind AS 102, SEBI, Companies Act and tax points are summarised from secondary commentary and must be checked against the notified text before reliance. Research date: 24 October 2026. Confirm each point with a qualified professional before relying on it.
