ICICI, HDFC Bank tweak stock options

The country’s two largest private sector lenders — ICICI Bank and HDFC Bank — have modified, albeit in different ways, their employee stock options plans (ESOPs) for 2008-09, to reflect the prevailing market environment.

HDFC Bank is proposing to double the exercise period, or the time span employees are allowed for converting their options into equity shares, from two years to four years.

ESOPs are usually granted only to senior executives and form a substantial part of the compensation package for top-level employees as compared with other components such as basic salary and performance bonus. A fixed percentage of the total options are vested to the employee every year, and the employee has the option to convert these ESOPs into equity shares within a specified time-frame, known as the exercise period, and at a pre-determined price.

 

According to HDFC Bank’s annual report, the change was proposed to enable the stock options’ scheme to achieve its objective of attracting and retaining the talent pool. “In view of the market conditions, the options might not be as attractive to the employee as originally intended, if the employees were to exercise the vested options within a period of two years from the date of vesting as presently provided under the scheme,” read the notice.

HDFC Bank managing director Aditya Puri received 175,000 stock options for 2008-09, as compared to 100,000 options in the previous year.

On the other hand, the country’s largest private sector lender, ICICI Bank, decided not to provide any ESOPs to the top brass for 2008-09, and has slashed stock options granted to second-rung management by half. It has also decided to extend the first vesting schedule from one year to two years. K Ramkumar, executive director, had told Business Standard that the lender’s executive board members had forgone stock benefits keeping in mind the “condition of the economy and the priorities of ICICI Bank”. Top management also did not receive any performance bonuses in the year.

In 2007-08, the then CEO K V Kamath and Chanda Kocchar, who was the joint managing director and CFO till the end of April this year, received 270,000 and 180,000 stock options respectively, apart from performance bonuses of

Rs 43,24,800 and Rs 22,44,000, respectively.

HDFC Bank is also planning to introduce a rule by which unvested options granted to erstwhile Centurion Bank of Punjab (CBoP) employees will lapse immediately if they leave HDFC Bank or are terminated. Options already vested with employees will have to be exercised within six months of the employee’s leaving.

HDFC Bank acquired old private sector lender, CBoP on May 23, 2008 and the latter’s employees received one stock option of HDFC Bank for every 29 stock options of CBoP outstanding on the date of the merger. These options had an exercise period of five years. A questionnaire e-mailed to HDFC Bank on Friday remained unanswered.