Esops for Star Per­form­ers at State-Run Banks in the Works

Govt con­sid­er­ing Banks Board Bureau sug­ges­tion to give big­ger in­cen­tives to em­ploy­ees; stock op­tions could be as much as 5% of PAT for large banks & 3% for smaller ones

The Economic Times - - Economy: Macro, Micro & More - Dheeraj.Ti­wari @times­

re­tain & at­tract tal­ent STOCK OP­TIONS

will be linked to bank’s prof­itabil­ity THE CON­STRAINTS New Delhi: Em­ploy­ees of staterun banks may stand el­i­gi­ble for stock op­tions from next fis­cal year, as the gov­ern­ment is ac­tively con­sid­er­ing the sug­ges­tion made by the Banks Board Bureau to bet­ter in­cen­tivise em­ploy­ees. The bureau last month sub­mit­ted a re­port to the fi­nance min­istry on re­ward­ing bank staff based on per­for­mance, a se­nior gov­ern­ment of­fi­cial said. One of the pro­pos­als is to is­sue shares equiv­a­lent to a cer­tain per­cent­age of banks’ net profit to em­ploy­ees.

“It is be­ing ex­am­ined. For large banks, em­ployee stock op­tion plan (Esop) could be as much as 5% of profit af­ter tax,” he said. For smaller banks, it could be about 3%.

The Esops will be of­fered to top per­form­ers as a mea­sure to re­tain tal­ent, an­other of­fi­cial said. Apart from Esops, bonuses and other per­for­mance-linked pack­ages are also be­ing dis­cussed.

“Nat­u­rally, the top-rung of­fi­cials will be given a large quan­tum, as they will have only up to five years of ser­vice left. For those with longer ser­vice du­ra­tion, the quan­tum will be low,” he added. Esops are com­mon in the pri­vate sec­tor, where com­pa­nies of­fer stocks to re­ward and re­tain key and top-per­form­ing em­ploy­ees. Since the em­ploy­ees stand to ben­e­fit from any ap­pre­ci­a­tion in stock price, Esops help also in align­ing the in­ter­ests of the em­ploy­ees with those of share­hold­ers.

In the last four years, the gov­ern­ment has con­sid­ered var­i­ous pro­pos­als to of­fer stock op­tions to em­ploy­ees of state-run banks. How­ever, the plans did not ma­te­ri­ali-


sed on ac­count of sev­eral is­sues, in­clud­ing poor fi­nan­cial per­for­mance of lenders due to ris­ing bad loans.

In 2010, a gov­ern­ment-ap­pointed com­mit­tee rec­om­mended that 15% top per­form­ers in the ex­ec­u­tive cadre in­clud­ing the chair­man and ex­ec­u­tive di­rec­tor be of­fered stock op­tions.

Last year, the then Re­serve Bank of In­dia gov­er­nor Raghu­ram Ra­jan also made a case for of­fer­ing Esops to bank staff.

“With pub­lic sec­tor banks' shares trad­ing at such low lev­els, a small al­lo­ca­tion to em­ploy­ees to­day may be a strong source of mo­ti­va­tion, and can be a large source of wealth as per­for­mance im­proves,” he had said.

The coun­try’s largest bank, State Bank of In­dia, at one stage was look­ing to of­fer an Em­ploy­ees Stock Pur­chase Scheme, but the plan was shelved.

“At that point, SBI’s shares were at a very low price, and it would have made sense. Since then, prices have im­proved, and it is dif­fi­cult for our em­ploy­ees to pur­chase this (stock),” bank chair­man Arund­hati Bhat­tacharya had said, adding that the bank was again ex­plor­ing the Esop route.

The gov­ern­ment of­fi­cial citied first said there would be a com­mon frame­work on Esops for all state-run banks. Last month, Banks Board Bureau chair­man Vinod Rai said bank em­ploy­ees would get both mon­e­tary and non­mon­e­tary in­cen­tives. The Banks Board Bureau is an au­ton­o­mous body of the gov­ern­ment. Its tasks in­clude help­ing im­prove the gover­nance of staterun banks and in de­vel­op­ing their strate­gies and cap­i­tal rais­ing plans, as well as rec­om­mend­ing se­lec­tion of their chiefs.


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