FALLING stock prices have left many employees in a sticky situation, mainly vis-a-vis their employee stock option plan (ESOP). The market price for the options, in several cases, is lower than the conversion price. Since this may have a bearing on employee morale, some firms have been considering the prospect of repricing their employee stock options. Market regulator Sebi allows the repricing of options if the exercise price becomes less than the market price.
Recently, companies such as Jain Irrigation, India Infoline, Dish TV and Geojit Securities have repriced their Esops. Jain Irrigation had issued Esops at prices between Rs 447 and Rs 560 in 2005. However, with the current market price of Rs 340, it will reprice its stock options at the ruling market price in addition to a discount of Rs 52.20.
India Infoline, for example, has cleared a proposal to reprice the Esops issued in 2007 at Rs 88 to Rs 45.3, early this year. Dish TV, cleared a proposal to reprice Esops at Rs 36.10 which is much lower than the price of Rs 75.2 it had originally settled for. It’s not only Indian firms. Even foreign companies have followed suit. Earlier this year, Google employees got a chance to exchange underwater stock options in a 1:1 ratio, under a programme intended to increase retention.
However, the issue of repricing Esops is a subject of debate. In most instances, Esops are granted over and above the existing market-determined cash compensation coupled with a sink-or-swim-together philosophy. The message here is — if markets do well, we all make money. If they don’t do well, Esop holders lose the potential profit while investors actually lose their real wealth.
Therefore, in certain circumstances, repricing may not necessarily go down well with the shareholders. They may take a view that Esops should make money only if the other shareholders have also created wealth for themselves.
Recently, companies such as Jain Irrigation, India Infoline, Dish TV and Geojit Securities have repriced their Esops. Jain Irrigation had issued Esops at prices between Rs 447 and Rs 560 in 2005. However, with the current market price of Rs 340, it will reprice its stock options at the ruling market price in addition to a discount of Rs 52.20.
India Infoline, for example, has cleared a proposal to reprice the Esops issued in 2007 at Rs 88 to Rs 45.3, early this year. Dish TV, cleared a proposal to reprice Esops at Rs 36.10 which is much lower than the price of Rs 75.2 it had originally settled for. It’s not only Indian firms. Even foreign companies have followed suit. Earlier this year, Google employees got a chance to exchange underwater stock options in a 1:1 ratio, under a programme intended to increase retention.
However, the issue of repricing Esops is a subject of debate. In most instances, Esops are granted over and above the existing market-determined cash compensation coupled with a sink-or-swim-together philosophy. The message here is — if markets do well, we all make money. If they don’t do well, Esop holders lose the potential profit while investors actually lose their real wealth.
Therefore, in certain circumstances, repricing may not necessarily go down well with the shareholders. They may take a view that Esops should make money only if the other shareholders have also created wealth for themselves.
