It’s a new fable

Mumbai, March 18: Old economy companies are waking up to the Esop way of rewarding their employees, who in turn are lapping up these shares.

In the smokestack squad, ACC, Gujarat Ambuja, Bombay Dyeing, ITC and banks and finance companies like HDFC, IDBI and ICICI Bank have logged on to the Esop bandwagon.

Rajesh Dhume, partner at E&Y, says there is a growing trend among old economy companies to issue stock options.

Employee stock options (Esops), also called sweat equity, were first used by infotech companies to reward their employees. Infosys had made millionaires out of even junior staffers like drivers and peons.

But unlike infotech firms where stock options are issued across the board and even to junior employees, the old economy companies have restricted the options to the top brass.

Ironically, infotech firms are going slow on their stock option schemes now as response from employees is quite poor. Compounding their woes is the confusion on accounting the options in the balance sheet. Infosys has shelved its Esops for now.

ITC today said it has issued and allotted 36,214 ordinary shares of Rs 10 each, upon exercise of 36,214 options by eligible employees under the ITC Employee stock option scheme.

Gujarat Ambuja’s Share allotment & Investor Grievance Committee has recently allotted 1.05 lakh shares on conversion of stock options by employees. The share price has gained appreciably over the year making it attractive for the employees.

Housing Development Finance Corporation (HDFC) has also allotted 6.84 lakh shares under a similar scheme.

HDFC had issued options for 8.92 lakh shares to 43 senior management employees in the grades of deputy general manager, general manager and whole- time director.

However, there are companies like the Aditya Birla group which prefer to reward employees in monetary terms.

Reliance, the country’s largest private sector group, has so far stayed away from Esops.

Bombay Dyeing announced its employee stock option scheme in 2002. However, the offer was restricted to the managing director and joint managing director.

Analysts say employees taking part in the Esops over the past three years would have made a killing. Sebi regulations stipulate that the options should be issued close to the market price.

However, by the time the employees exercise their options, the share could have moved either way. Luckily, for employees of old economy companies the shares have been rerated by the markets and have made huge gains. This makes the options attractive for the employees.

Canny employees would exercise such options after the minimum vesting period and pay the price specified at the time of the issue of the options and sell in the marketplace to make a neat pile for themselves.

During the infotech boom, many hoped that the shares would rise further and did not exercise their options. They are still ruing their decision as the share prices have plunged from those levels but in the past one year has recouped partly.