Hero MotoCorp to offer ESOPs to employees, directors3 min read . Updated: 17 Sep 2014, 12:29 AM IST
The move by the two-wheeler firm is being as an effort to retain talent and hire top executives to drive its global aspirations
The Munjal family-controlled scooter and motorcycle maker Hero MotoCorp Ltd plans to offer stock options to its employees and directors in an effort to retain talent and hire top executives to drive its global aspirations.
The offer of 4.99 million employee stock options (ESOPs) will result in a less than 2.5% dilution of the paid-up equity share capital of the company as on 30 June. At Tuesday’s closing price of ₹ 2,791.30 per share, the 4.99 million shares are worth ₹ 1,393 crore, according to a Mint calculation.
The vesting of stock options will be determined by certain performance parameters of the nomination and remuneration committee, two people familiar with the development said. Neither wished to be identified.
The company firmed up its first employee stock ownership plan scheme in 2012.
That plan remained just an “enabled resolution". The new resolution envisages the issue of options over the next 10-12 years.
“The proposal to grant ESOPs is currently under the consideration of the shareholders of the company. Therefore, we would not like to discuss specific details of the proposal at this stage," a spokesperson for the company said in an emailed response.
The New Delhi-based company has opened the e-voting for the new stock option resolution till 18 September and results will be declared on 22 September.
“The objective of the scheme is to reward, attract, motivate and retain employees and directors of the company and its subsidiaries," one of the persons cited above said.
The nomination and remuneration committee will grant stock options based on the merit, grade, conduct and length of service of an employee.
The stock options can be exercised one year from the date of grant.
The new stock option plan comes even as Hero is in the process of hiring global auto executives. It recently appointed a senior designer from German luxury car-maker BMW, Markus Braunsperger, as the head of its research and development (R&D) division. It is also looking to fill up the vacancy created by the exit of Anil Dua, senior vice-president (sales and marketing).
Proxy advisory firms said the resolution is not clear on details such as the price at which the options will be exercised.
This refers to the price at which the stock can be bought by the person holding the option, and it is usually decided at the time the option is issued.
Proxy advisory firm Institutional Investor Advisory Services, in a note to investors, said that “as a practice of good governance the companies should disclose the exercise price. We have therefore flagged transparency risk to the proposal".
Shriram Subramanian, managing director, InGovern, a Bangalore-based proxy advisory firm, said that his firm has recommended that investors vote against the proposal because the “details of exercise price and schedule" have not been given.
“It will be difficult for us to judge as the details are sketchy," he said.
An analyst said the stock option plan was another of Hero’s efforts to make the next big leap.
“From setting up a world class R&D centre to hiring expats with international experience, the Hero management has sent out all the right signals so far. Stock options to employees is unusual but looks like a good move. This is a great HR practice," said Mahantesh Sabarad, deputy head of research, SBI Cap Securities Ltd.
Not too many Indian companies issue stock options to employees.
Ever since parting ways with its Japanese partner of 26 years, Honda Motor Co. Ltd, Hero has been in transition. Its first indigenous product is yet to hit the market and the lack of technology is seen by analysts as a constraint for Hero’s future prospects. The company has sought to address this by developing its own capabilities on this front, picking up a stake in Erik Buell Racing, and forming partnerships with Austrian engine developer AVL LIST GmbH, Italy’s Engines Engineering and Magneti Marelli.
On Tuesday, the Hero stock closed down 0.34% while the BSE’s benchmark Sensex fell 1.21% to 26,492.51 points.