Accounting Mechanism of Employee Stock Options in India: A Case Study of Wipro Limited, an IT Service Provider Company in India

Employee Stock Option Plans (ESOPs) are the plans under which employees are given a right not an obligation to purchase a certain number of shares in the company at a predetermined price on fulfillment of certain conditions and based on performance criteria such as such as vesting period, nature of employment, seniority, number of years of service with the company or a judicious mix. On vesting, the employees are given shares of the company at a discounted price to the market price at the time of exercise. Many companies in India have now started giving Employee Stock Options as this is beneficial to both the employer as well as the employee. In India IT companies pioneered the ESOPs concept to retain and reward their senior management. In the present study an attempt was made to study ESOPs in general and ESOPs in an IT company “Wipro Ltd” in particular. This study discussed accounting practices followed in Wipro Ltd in regard to ESOPs and measured effect of ESOPs on income statement, Earning per share, cash flow statement and Balance sheet and found that net income of the company decreased due to amortization of stock based compensation expense, Earning per share diluted, inflows from financing activities increased, paid up share capital increased and owners’ equity diluted on exercise of stock options.