A first in Tata Group’s 150-yr-old history: Esops for employees

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Mumbai: Tata Motors, India’s largest commercial vehicle maker, plans to offer employee stock options for the first time to 200 top-level executives, investing in talent as it enters the next phase of its turnaround strategy.

The initiative is the first of its kind for a large manufacturing company in the $100-billion Tata Group and also a rarity in the Indian automotive space.

The criteria for assigning stock options will be based on three key performance metrics in the domestic market — gain in market share, EBIT margin improvement and free cashflow as a percentage of revenue, company officials said.

Selected employees will be granted the stock options starting in the second quarter of the current financial year at an average of the share prices of the preceding 90 days. The options will vest with the employees in three tranches between FY21 and FY23, PB Balaji, group CFO, told analysts at a Q4 earnings call.

The stock option plan will be presented for shareholder approval at the upcoming annual general meeting.

VG Ramakrishnan, MD at consultancy firm Avanteum Advisors, said it is a good move by the company and underlines that the top management is willing to take accountability for the performance of the company.

Tata Motors said it is investing significant resources in the future of the company’s top talent, backed up with leadership development and progression and promotion opportunities, to build a satisfying and engaging career for all.

The company, which makes cars including Zest, Hexa and Nexon, broke into full-year standalone profit in FY18, excluding impairment charges.

The domestic business of Tata Motors delivered a strong performance with Turnaround 1.0, the company’s plan to arrest a decline in volumes and market share for commercial vehicles with the aim of turning in profit. It grew at a faster pace than the market, gained market share, improved profitability, broke even at an underlying profit-beforetax level and generated positive free cashflows.

The board approved increments and bonus that will reflect the strong performance. Turnaround 2.0, the next phase of its strategy, places emphasis on sustaining the strong performance of the commercial vehicle business and making the passenger vehicle division profitable.

The company had free cashflows of Rs 1,339 crore for the year, which was a first in five years. Tata Motors registered growth of 19% and 17% in the commercial vehicle and passenger vehicle segments, respectively, in FY18.

To drive the performance culture, the company’s increment and incentive framework has been differentiated substantially, based on performance levels, a Tata Motors spokesperson told ET.

“Additionally, to further align results and rewards over the long term and also to ringfence top talent, we are introducing the Long-Term Incentive Plan for the top talent — about 200 in number — subject to approval of our shareholders,” the spokesperson added.

The company has handed out an average increment of 10% for the lower level staff, which is double that of the previous year and higher than the industry average. The bonus was set at 100% compared with an average of 50-60% in the previous financial year.

The salary increases are in line with the new increment and incentive framework, which rewards higher performance levels with a much better increase than lower performance levels.

Also, the increments this year are higher for staff at the lower levels of management. Level 5 employees, which are larger in number, have been given a higher average increase compared with those at more senior management levels.

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