More options

Calcutta, June 21: Reliance Industries (RIL) is planning to launch its first employee stock option scheme (ESOP).

The company has decided to offer fresh equity up to 5 per cent of its paid-up capital as on March 31, 2006.

In other words, Reliance will offer up to 6,96,75,402 shares under the scheme. In today’s market value, this would mean shares worth Rs 6,716 crore.

A special resolution to this effect would be placed before RIL’s annual general meeting on June 27.

Stock options have been an effective instrument for many a company across the world to reward employees.

Infotech companies have made ESOP popular in India. Companies generally consider a stock option when their prices are high.

It can be mentioned that Reliance had considered a scheme soon after Sebi came out with the guidelines for ESOP way back in 1999 and an in-principal approval was also granted in the AGM of 2000.

However, stocks have not been offered under this scheme so far. The company has now decided to bring about some changes in its planned scheme and has placed a fresh resolution at this AGM.

According to the new norms, all permanent employees, including directors, will be eligible for the ESOP.

However, an employee who is a promoter or belongs to the promoter group will not be eligible for the option.

A director who holds more than 10 per cent of the company, directly or indirectly, will not be eligible for the ESOP either.

There shall be a minimum one year between grant of option and vesting of options. The maximum vesting period may extend up to four years from the date of grant of options.

The price will be linked to the market price. The company would have the option to offer stocks at a discount to the market price as well.

The company says ESOP is an effective instrument to attract talent and align the interest of employees with those of the company and its shareholders. It provides an opportunity to employee to share the growth of the company and creating long-term wealth in the hand of the employee.

“The main objective of such schemes is to give employees who are performing well an opportunity to gain from the company’s performance, thereby acting as a retention tool and attract best talent available in the market,” a Reliance Industries official added.