A market leader in the housing finance industry, this listed company with an employee strength of more than 5000, had implemented ESOP plan and granted stock options mostly at FMV to identified levels including branch heads. The objective was to inculcate employee ownership culture, retain key employees and also attract fresh talent.

Challenges

The company wanted to drive performance through equity sharing and set the parameters for future grants to the rule of ‘pay for performance’ . The management felt the dilution needed to be optimized to sustain over a longer period. The company also sought to balance wealth creation with equity dilution and to rationalize accounting costs. The company wanted to address the liquidity concerns for employees towards payment for exercise price. It was felt that there was a need to reform and evaluate a new equity linked LTIP to optimize multiple goals.

Solutions

After detailed discussions with the compensation committee, ESOP Direct team designed a Stock Appreciation Rights (SARs). It evaluated both cash based and equity settled equity instruments, to cover employees on the basis of their criticality and providing them opportunity of high wealth creation. Scheme parameters were calibrated with the industry best practices and peer group. Pricing and dilution impacts were optimized. The Plan was designed for flexibility to cover situations with regard to making future grants. We also suggested the use of appropriate software platform for Plan administration to enhance employee experience and branding for better communication and buy-in.

Value delivered

Our association from the initial stage of feasibility study and Plan conceptualisation to legal documentation and final roll-out helped the management maintain complete clarity on project deliverables which in turn made strategic/tactical discussion much more efficacious. The sensitivity analysis we presented helped the compensation committee to plan the dilution such that it rendered the best possible benefit to stakeholders.The special employee communication session we conducted synced the objectives of the management and employees and created a win-win situation.