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Proxy advisory firms at odds over JSW Steel employee benefit scheme

Shubhra Tandon
Proxy advisory firms at odds over JSW Steel employee benefit scheme

An innovative employee benefit scheme proposed by JSW Steel has caught the attention of proxy advisory firms. While SES (Stakeholders Empowerment Services) recommended shareholders to vote against the resolutions of the said scheme, another firm IiAS (Institutional Investor Advisory Services) has suggested to vote in its favour.

Under the JSWSL Employees Samruddhi Plan 2019, JSW Steel is offering permanent employees in the grade L01 to L15, working in India as on April 1, 2019, to buy equity shares of the company from open market by availing a loan provided by a lending agency , and the interest thereon will be borne by JSW and the employee in the ratio of 75:25.

The plan will be administered by JSW Steel Employees Welfare Trust and not more than 1,24,97,000 equity shares representing 0.517% of the issued equity share capital of the company would be acquired by the eligible employees under the plan. The equity shares so acquired by the employees will be subject to a lock-in of two years and those shares will be subject to lien by the lending agency, unless interest (which will be 25% of the total interest) in this regard is paid by the employee. Also, employees will have to bear their share of interest, in order to free the share from the lien. Even if free from lien, the shares will be subject to a lock-in period for two years.

JSW has said the scheme is just another way of rewarding the employees and is intended to motivate the eligible employees to create a sense of ownership among them. However, SES in its recommendation report has termed the scheme non-compliant with the law and that it fails the test of fairness, transparency and governance .

Among the objections, the proxy advisory firm said the scheme contemplates purchase of equity shares by the employees of the company directly from the secondary market, through a Trust. However, it stated that the role of the Trust in the scheme is unclear if the equity share is to be purchased directly by such employee.

SES further stated that JSW Steel already runs an employee stock option scheme for employees for grades above L-16 (associate vice-president and above). However, while a company is entitled to have different schemes for different grade of employees, in the present case, there is a stark difference in the risk and rewards for the employees under the different cadres. Under the Samruddhi Plan, risks and reward ratio does not appear to be in the interest of the employees of the company, the advisory firm noted.

Meanwhile, IiAS has recommended to vote in favour of the resolutions in the scheme as in its view, there will be no dilution for existing shareholders on account of the plan. The financial impact will be minimal as the annual interest expense to be borne by the company (around `25.82 crore) is around 0.3% of the FY18 PBT and around 1.3% of the total FY18 employee expenses.

JSW Steel had called for a vote on the scheme through a postal ballot via a stock exchange notice dated February 6, 2019. The cut-off date to be eligible for voting was April 5, while the e-voting period starts from April 18 and ends on May 17, 2019.