Join the club

Mumbai, June 14: At a time when most infotech companies have stopped rewarding employees through stock options, Tata Consultancy Services (TCS) has drawn up a share purchase plan for its professionals in its forthcoming initial public offering.

Employees of TCS are in for a double bonanza. In addition to the shares issued under the employee share purchase scheme (ESPS), select employees of the company, its subsidiaries and Tata Sons will be eligible to receive a one-time cash payment based on certain criteria determined by the management.

“Based on this criteria, the total cash payment to employees is expected to be up to Rs 90 crore,” Tata Sons said in its IPO document.

Unlike employees of other global and domestic infotech companies, the TCS staff have so far never benefited from stock options. However, TCS employees may be among the few in the industry who could make a pile when the share is listed on the bourses.

The company said in its red herring prospectus, “We intend to grant shares of Re 1 apiece to select employees of the company, its subsidiaries and Tata Sons.”

The share purchase scheme was adopted at a meeting of the shareholders of TCS on May 5, 2004.

“We expect to issue these shares simultaneously with the allotment of those to be sold in the offer, or immediately after the date of allotment but prior to the commencement of trading. We may issue shares up to 0.5 per cent of our paid-up capital after completion of the offer,” the TCS document said.

“The issue of shares in connection with the employee share purchase scheme will result in a charge to our income statement,” the document said.

“We are unable to estimate the amount of this charge because it will be determined by the trading price of our shares on the date of issue under the scheme,” it added.

In fact, like other infotech companies, employee costs constitute the major expenditure incurred by TCS, representing approximately 45 per cent of the company’s marketing, general and administrative expenses in the first nine months of 2003-04.

The staff strength increased by 18.5 per cent to 28,050 employees on December 31, 2003 and salaries and bonuses increased from Rs 731.7 crore in 2002-03 to Rs 861.5 crore in 2003-04.