ESOPs will be granted in the second quarter of this year, followed by first quarter of every year starting FY21.
About 200 employees of Tata Motors stand to get rewarded through the employee stock option scheme (ESOP) as a result of the rapid financial turnaround achieved by the company last year.
The Mumbai-based maker of cargo trucks and passenger cars will issue fresh equity shares to identified talent who have helped boost market share, bottom line gain and free cash flow in the domestic market.
ESOPs will be granted in the second quarter of this year, followed by first quarter of every year starting FY21. This is also being done to ‘ring fence’ and retain critical talent during the turnaround phase.
Tata Motors’ board and remuneration committee has already approved the plan before it is scheduled to be tabled in front of the shareholders for approval at the upcoming annual general meeting.
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Speaking to analysts post announcement of its quarterly and annual financial numbers, PB Balaji, group chief financial officer, Tata Motors said, “This is a very big call for the company and objectives are very clear, drive long-term focus on competitive, consistent, cash accretive growth, ring fence critical talent on during the turnaround phase, match employee payoffs the long-term gestation period of key initiatives.”
He added: “Because there are long gestation projects like new product development or Turnaround 2.0, we need to ensure payoffs are aligned to that. (It) also (helps) drive owner mindset and collaboration amongst all employees.”
Turnaround year
Tata Motors has achieved a strong pull back in both passenger vehicle (22 percent growth) and in commercial vehicle (23 percent growth) sales during last year. The company had also enacted a landmark change last year in its human resource policy as part of the restructuring plans that saw designations getting shrunk to just 5 from 140 earlier.
Tata Motors gave an EBIT (earnings before interest and tax) margin guidance of 3-5 percent between FY19-21 and 7-9 percent post FY21. During last year the company clocked an EBIT margin of 5.8 percent at the stand-alone level, a significant improvement over 0.5 percent posted in 2016-17.
The company returned to the black in the December, 2017 quarter after recording loses in five straight quarters. Because of the one-time impairment hit (Rs 1,229 crore) taken during the March, 2018 the company posted a loss of Rs 500 crore even as underlying EBITDA stood at 6.2 percent.
Incentive-led structure
Tata Motors introduced a new salary structure that rewarded best performers handsomely. A superior performance incentive was added to the packages. Now, while an employee with a lowest level of performance gets 10 per cent of his salary as incentive, someone who has performed at the highest level gets 40 percent of the salary.
The sales team are rewarded even better. A sales executive who achieves less than 70 percent of his target gets zero percent of the incentives, 110 percent if he achieves 100 percent of the target, 200 percent for achieving 120 percent of the target and a whopping 300 percent for achieving 150 percent of the target.
“So this has basically covered key talent in Tata Motors domestic; roughly about 200-odd people is what we are looking at. The criteria will be cumulative delivery over the performance period for the following three key metrics - market share gain, EBIT margin improvement, free cash flow as a percentage of revenue, all of the domestic business. This will be equity settled with Tata Motors shares by issuing fresh shares to employees”, added Balaji.
Taking cognizance of the changes, a report from Motilal Oswal said: “Transformation mentality is embedded in the organization, and momentum in this is evident. Big changes include a new mindset in the organization, tremendous focus on results and people have learned to work in teams."