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Federal Bank’s plan to extend its employee stock option plan (ESOP) to employees of associate firms and subsidiaries has failed to garner enough support from its shareholders. A special resolution put to vote in this regard was rejected by investors — making it a rare instance for a domestic bank to suffer a defeat at the hands of its shareholders.
Two resolutions floated by the Aluva-based bank around ESOP schemes for its employees were voted unanimously in favour. However, the resolution to approve extension of ESOP 2023 and the Federal Bank Employee Stock Incentive Scheme 2023 to employees of subsidiary and associate companies got 51.85 per cent ‘against’ votes.
In its response to Business Standard, Federal Bank said that the ESOP scheme was aimed at employee retention.
“This proposition [resolution 15] did not secure the requisite shareholder consensus. The resolution was aimed to amplify our scope of employee engagement and retention, augmenting overall productivity at our associate companies. Should the inclusion of associate employees been enacted, the associated Fair Value of Options was intended to be expensed as a cost borne by the respective company. This initiative was strategically aligned with our overarching objective of fostering employee retention. Notably, its emphasis was on our wholly owned operations subsidiary, FedServ,” the bank said in an email statement.
The bank has two associate companies --- Ageas Federal Life Insurance Company (formerly IDBI Federal Life Insurance) and Equirus Capital. In addition, the bank has one subsidiary Fedbank Financial Services, which has filed its draft red herring prospectus with the Seurities and Exchange Board of India for an initial public offering.
The voting advisory firm IIAS had recommended an ‘against’ vote on the resolution.
“We do not support extension of ESOP schemes to employees of associate entities…Under the resolution, the bank may continue to grant stock options to employees of the subsidiary even after it is listed, a practice we do not support,” IIAS said in a note.
Federal Bank has a diversified shareholder base with public institutions owning close to half of its equity. Some of the key public shareholders of Federal Bank include HDFC Mutual Fund (4.49 per cent voting rights as on July 25), Mirae MF (3.28 per cent), Aditya Birla Sun Life MF (2.49 per cent), Nippon Life India (2.47 per cent) and HDFC Life Insurance (2.45 per cent).
According to IIAS, previously, only six other banks have seen resolutions get rejected by shareholders. These include Jammu & Kashmir Bank, Karnataka Bank and Bank of India, among others.
Issuance of ESOP has always been a contentious issue for shareholders. In the past, new age companies such as Zomato, Nykaa and Paytm have faced shareholder dissent on their ESOP proposals.
