Even as British American Tobacco (BAT) defeated a special resolution by ITC Ltd to offer employee stock option scheme (ESOPS), prompting the latter to come up with employee stock appreciation rights scheme (SARS) instead, Sanjiv Puri, chairman of the cigarettes-to-hotels major said that ESOP was the preferred choice for the company.
He reasoned that SARS impacts the cash position of the company, while ESOPS does not.
"ESOPS is the best way to retain talent. If that isn’t available, then we may look at a cash settled ESAR. In this, the non-cost cash that was there becomes a cash cost," he said.
Earlier, at the company’s 108th Annual General Meeting here, some of the company’s shareholders had questioned the decision of BAT Plc - the single largest shareholder in ITC - to reject ESOPS.
While, one of the shareholders said that BAT was not supportive of ITC management and was not playing a constructive role, another said that the outgo on the alternative scheme was higher.
Puri said, historically, the impact of ESOPS had been to the tune of Rs 300-400 crore.
Rajiv Tandon, the company’s chief financial officer said, “It (SARS) is not likely to impact as far as an employee is concerned in a significant manner but what is going to be different is the accounting fees and the books of accounts. Cash position or liquidity will come down to that extent. Under ESOPS, the cash position wasn’t impacted”.
Last year, BAT had turned down ITC’s proposal for issuing ESOPS. BAT’s rationale was that it would dilute its holding as the scheme would have resulted in a dilution of 0.6 per cent for BAT over 14 years.
After ESOPS was turned down, ITC came up with a SARS.
When contacted, a British American Tobacco spokesperson said, “We are very supportive of plans to incentivise executives and employees of ITC with company shares as long as the incentivisation is not done in a manner which is dilutive to ITC shareholders. It is BAT’s understanding that other large Indian companies incentivise their employees by setting up employee stock option schemes in a way which is not share dilutive”.