Nudge Or Push? PSU Bank Employees Complain About Pressure To Pick Up Stock Options
Top managements at India’s public sector lenders are nudging employees to step up subscriptions to recently introduced employee stock option schemes, in an attempt to prove the success of a rare structural reform in this segment of banking. The nudge, which could have been justified as a way to familiarise employees with the newly introduced incentives, has turned into a push, with many employees feeling pressured to subscribe to these schemes.
The government first approved the grant of employee stock options for public sector bank employees in 2017 and initial attempts by smaller lenders like Allahabad Bank and United Bank of India saw limited success. Since then, larger public sector peers have opened ‘Employee Stock Purchase Schemes’. This time, though, banks seem to be pushing these schemes in a manner that some employees see as coercive.
Atleast ten public sector bank employees who spoke to BloombergQuint on the condition of anonymity, claimed that they faced pressure from their bank’s management to purchase shares under the stock purchase plans.
A bank officer with Bank of India said that all employees had been asked to purchase shares under the bank’s stock options issue which closed on Feb. 28, 2019. Employees who resisted were told that they may face consequences in their annual appraisals and may even be transferred, he claimed.
The bank is like your mother, the management said to coax us, said the employee.
Bank of India raised Rs 661 crore through the scheme in which 94.7 percent of all employees participated, according to a press release issued by the lender on Tuesday.
Internal bank documents, letters and circulars issued by senior bank management, that BloombergQuint has seen, state that employees should open a demat account, update their human resource portal and provide evidence of sufficient balance in their operative accounts in order to purchase the shares. Other documents show branch level targets being set at some banks.
Employees have received calls from regional managers, pressuring them to take a loan if needed and subscribe to the scheme, said an officer from Union Bank of India.
The bank management gets a list of all employees at different branches, they separate the employees and find out who failed to open the demat account. We then receive calls directly from the regional head or branch head asking us why we have not complied with their directions, said one of the employees.
A central committee member of the Bank Employees Federation of India, who also spoke on condition of anonymity, told BloombergQuint that even as subscribing to the schemes remains optional on paper, employees often find themselves in a moral dilemma when higher officials ask employees to subscribe to the same.
Bank of India, Union Bank of India and Canara Bank did not respond to emails sent by BloombergQuint on the issue.
J Packirisamy, managing director and chief executive officer of Andhra Bank, refuted the allegations made by the employees, when contacted by BloombergQuint.
Most PSBs have offered up to a 25 percent discount on the price of the shares and a lock-in period of one year. After considering a holding cost of 10 percent per annum, even if the share price does not appreciate, there is a 15 percent return built-in, Packirisamy explained.
Subscriptions Through Credit
Several public banks have made credit arrangements for employees to enable them to subscribe to the stock option schemes. Union Bank of India, for instance, has increased the limit on the overdraft facility by up to 50 percent for employees in higher cadres, according to bank employees BloombergQuint spoke to.
Similarly, two employees from Andhra Bank said that the bank has enhanced the overdraft facility extended to all employees as many employees had exhausted their existing limit.
Union Bank of India and Bank of India have also arranged for loans from Canara Bank to facilitate subscription to the stock option scheme, according to a report in the Economic Times.
A manager from the Union Bank of India explained that taking such a loan to subscribe to the stock purchase scheme would increase their existing debt burden.
I get Rs. 24,000 as cash in hand at the end of the month after servicing an existing housing loan, said the employee. After Rs. 10,000 every month for commute and household expenses, if I have to pay Rs. 6,000 for this loan from Canara Bank, how will I pay for expenses such as my children’s education, he asked, adding that the management is not willing to understand the situation.
This is unethical. When employees want loans, most banks are very stingy. Now when they want people to buy the shares, loans are being forced for speculative purposes.C H Venkatachalam, General Secretary, All India Bank Employees’ Association.
When asked about higher overdraft limits, J Packirisamy of Andhra Bank said that employees can use the enhanced limit for any purpose and they do not have to use the money for purchasing shares. “We have instructed and re-iterated that there should not be any pressure on anyone to subscribe,” he said.
He added that pressuring employees would not help banks as the money raised through the scheme is insignificant in terms of their capital requirements.
Several banks, including Andhra Bank, are in the midst of the stock purchase schemes or have such programs opening in the coming weeks.
The Push And The Resistance
The push from bank managements may be well-meaning as they try to usher in a change in salary structures across public sector banks. For years, experts have urged the government to introduce human resource reforms across public sector banks to retain talent and incentivise better performance among employees.
The suggestions, which date back to a 2010 committee headed by veteran public sector banker AK Khandelwala, were reiterated by the Banks Board Bureau under Vinod Rai.
As such, the intent behind the schemes may be justified but the communication needs to improve, said Amit Vadera, head of the financial services and PSU verticals at TeamLease Services Ltd.
There is a huge gap in the remuneration package of private bank employees and public sector bank employees, so ESPS is an incentive for individual performers. The intent is there but the way the scheme gets communicated to employees of public sector banks is not being looked at positively.Amit Vadera, Head of BFSI and PSU Vertical, TeamLease Services Ltd.
Employees, on their part, argue that subscribing to these stock options may yield little for them in terms of returns.
A Union Bank employee that BloombergQuint spoke to said he was reluctant to subscribe to these shares because he is uncertain of how the stock of his bank would fare. The performance of the bank has gotten worse over the last five years, there is no guarantee that the share price will rise, this employee said while adding that he has investments in private bank shares.
Another employee, this one from Bank of India, struck an equally skeptical note. What guarantee is there that no large write-offs or sudden large defaults will happen and hit the share price, this employee asked.
A third employee, from Andhra Bank, cited the burden of various government schemes on public sector banks, to say that this could mean that PSU banks and their shares will continue to under perform private lenders.
The concerns expressed by these employees may or may not be justified.
These kind of incentives are long-term in nature and will work well for employees, but banks need to re-look at how they are communicating the benefits of the scheme, said Vadera.