 "IDFC's plan to re-price Esops draws proxy ire")
In April 2014, the Reserve Bank of India (RBI) granted an in-principle approval to IDFC to set up a new bank in the private sector. Subsequently, a scheme of arrangement was filed with the Madras High Court for demerger of financial undertaking (the lending business of IDFC) to IDFC Bank.
Post-demerger, all the lending business of IDFC has been demerged and transferred to IDFC Bank. IDFC continues to be a listed holding company. Following this, some of the key executives have moved to the IDFC Bank and the stock price has adjusted to the demerger.
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In a final decision that is expected on Monday, following a month-long voting, IDFC proposes to re-price and re-grant 96.5 per cent of the unexercised options and to reduce the pool size to 4.2 per cent of issued and paid-up share capital. The 38.2 million options proposed to be repriced have been granted to 377 employees, of which 4.2 million (11 per cent) are for key managerial personnel.
The voting on the proposals ended on Friday. It is understood that the Union government, which is a major shareholder, has given its consent for the changes.
Unlike Esop modifications made by companies, IDFC has reduced by 41.1 per cent the number of options that are going to be granted at the lower price of Rs 43.40. Further, in re-granting these options and having a vesting period that begins at least one year from the date of the grant, the company has delayed any potential of an immediate pecuniary gain by employees.
“Notwithstanding this, Esops are ‘pay at risk’ options that employees accept at the time of the grant. The inherent assumption of an Esop scheme is that there could be possible downside risks — and that employees may not indeed gain from a stock price movement,” IiAS said in a recommendation against the proposal.
“By repricing, IDFC is attempting to protect employees’ downside risk and ensure that they gain on the upside. Additionally, only those options that are not in-the-money are being repriced and re-granted — those that are in-the-money will continue to vest and be exercised as per the earlier schedule. Further, employees who receive the repriced stock options will continue to hold the same options of IDFC Bank, as proposed originally (at the time of the formation of the bank),” the proxy firm said.
IiAS also recommended shareholders to vote against a proposal by IDFC to grant Esops to employees and directors of its subsidiaries.
IDFC said the proposals are in the interest of the shareholders and employees joining its bank after October 2015 would not be granted these options. “The proposals are in the interest of shareholders and employees. The options have been granted at market price, have a three-year vesting period and reduce overall dilution for shareholders by eliminating the overhang of out-of-money options and reduce the overall option pool available for future grants,” an IDFC spokesperson said.
According to the company, IDFC is now an investment company and value creation for shareholders will come from the performance of subsidiaries, the bank being the largest contributor.
“The proposals are permitted by regulations and have been designed to incentivise employees who were involved in building IDFC Group including the launch and operationalising of IDFC Bank. There will not be any options granted to employees of IDFC Bank who joined the bank after the bank became operational on October 1, 2015,” the spokesperson added.
EMPLOYEE PLAN
- IDFC proposes to re-price and re-grant 96.5 per cent of the unexercised options and to reduce the pool size to 4.2 per cent of issued and paid-up share capital
- The 38.2 million options proposed to be repriced granted to 377 employees