ESOPs proposed for PSU bank staff in revised pay package

The newly constituted Banks Board Bureau (BBB) under former CAG Vinod Rai is reported to have proposed an overhaul of the salary structure of public sector bank employees in a way to incentivise performance and make salary package more attractive.

Planned to be implemented from 1 April 2017, the beginning of the new financial year, the pay package will see a major change with components such as bonuses, employee stock options (ESOPs) and performance-linked incentives from 1 April this year, reports quoted BBB chairman Vinod Rai as saying.

As part of the efforts to attract more professionals into the PSB space, the BBB is also toying with the idea of ensuring a longer tenure for those appointed as executive directors and chief executive officers.

The union finance ministry is reported to have agreed in-principle to allow public sector banks to offer stock options to their employees from next fiscal - a move aimed at retaining experienced hands with better incentives.

According to reports, ESOPs could be given by those banks which have not only earned substantial profit but also made remarkable improvement in managing NPAs.

It will help motivate employees to work towards strengthening the financial status of their banks so that their share value rises.

However, finer details of the proposals are yet to be worked out like what percentage of profit can be earmarked for ESOPs, reports said, adding, this is based on the suggestion of BBB.

One of the proposals is to issue shares equivalent to a certain percentage of banks' net profit to employees which is being examined.

For large banks, the ESOPs could be as much as 5 per cent of profit after tax while for the smaller ones, it could be about 3 per cent but no decision has been taken yet, sources said.

Since the employees stand to benefit from any appreciation in stock price, ESOPs also help in aligning the interests of the employees with those of shareholders.

Earlier in January, BBB chief Vinod Rai had said the compensation package across the board of public sector banks needs to be improved.

''Maybe we are not able to do much with the fixed part of compensation package but variable part we are hopeful that in the next financial year we will be able to introduce a far more attractive package which will have bonuses, ESOPs and other performance linked incentives as part of the package,'' he had said.

These can be monetary or non-monetary benefits to make the public sector banking space more attractive for professionals to enter he had said.

Last year, the then RBI governor Raghuram Rajan also made a case for offering ESOPs to bank staff.

''With public sector banks' shares trading at such low levels, a small allocation to employees today may be a strong source of motivation, and can be a large source of wealth as performance improves,'' Rajan had said.