By Khairie Hisyam
S P Setia has defended its Long-Term Incentive Plan (LTIP), which contains an Employee Share Grant Scheme (ESGP) component that basically enables the group to award essentially free shares to its employees — including directors — of up to 15% of outstanding shares.
In an email response to KiniBiz, the group explained that compared to the previous Employee Share Options Scheme (ESOS), LTIP is more comprehensive because it encompasses both ESOS and ESGP, which in turn comprises two share plans — the Restricted Share Plan (RSP) and the Performance Share Plan (PSP).
RSP is subject to employees’ individual Key Performance Indices (KPIs) while PSP is subject to the group’s performance.
Responding to the query on why ESGP was necessary given that the ESOS — which gives share options — already in place, S P Setia said that with all three vehicles namely ESOS, RSP and PSP, the composition of each award to staff can be tailored to suit every level of staff.
“Under the RSP, staff can be given 10,000 shares at, say, RM3 and this is given over a period of time for free. Even if the share price drops below RM3 (price at the time of grant) it will still have value,” said the group. “However, the value of the option under the ESOS would be wiped out if the share price falls below the exercise price.”
Explaining further, S P Setia said that RSP applies for those at manager level and below, whose quantum of granted shares will be determined by their individual KPIs. Upon achieving their respective KPIs, they would receive shares over a period of time for free.
“Hence, uncertainty is removed away from staff and they can focus on achieving their individual KPIs,” said the group. “Moving up the ladder, senior managers will get a blend of RSP, PSP and ESOS and the composition may vary depending on their level.”
The group added that the PSP, designed for senior staff, is driven by the group’s KPIs in order to drive long-term financial performance. “Under the ESOS, even if the Group performs well, it is vital that the share price moves in tandem, thus aligning senior staffs’ interest with shareholders’ interest,” said the group.
However, the group has yet to respond to follow-up queries by KiniBiz on the concerns of whether senior staff would still be motivated under the ESGP scheme where they would still profit regardless of stock price direction.
Responding to the question of how the company will determine which employees receive share options under the ESOS component and which employees receive free shares under the ESGP component, S P Setia reiterated that the composition of each award is tailored to each individual staff member’s level.
“In addition thereto, in determining the total number of options and shares to be awarded to each employee, the LTIP Committee will take into consideration amongst others, the employee’s corporate rank, performance, potential for future development and contribution to the success and development of the Group,” it said.
Below is the rest of the email response from S P Setia.
KiniBiz: We understand that LTIP was proposed and approved in the February EGM earlier this year. How supportive were the shareholders during the EGM towards LTIP?
S P Setia: Supportive. Our shareholders approved the LTIP which entails the issuance of up to 15% of the issued and paid-up share capital of the company.
KiniBiz: Article 2.3.1 of the circular for the above mentioned EGM (Maximum number of new S P Setia shares available under the Proposed LTIP) stated that the total number of new shares made available by LTIP shall not exceed 15% of total outstanding shares when LTIP awards were granted within the duration period (stated in 2.3.4). How is 15% calculated for each award?
S P Setia: The maximum number of new shares which may be made available (including the number of shares that have been issued under the LTIP) shall not exceed 15% of the total number of shares of the company in issue at the point when an LTIP award is made.
KiniBiz: The circular stated that the new share awards will completely at the Committee’s discretion. What sort of check-and-balance mechanisms are in place apart from the guidelines of the circular?
S P Setia: They include amongst others, the following:
i) the Audit Committee shall review and verify that the awards made under the LTIP are in accordance to the criteria of the Bye-Laws and the LTIP Committee; and
ii) the Group has established various procedures to ensure that the awards made are consistent with the Group’s aims of motivating & retaining staff.
KiniBiz: Since it’s approval in the February EGM, has there been any share awards under the ESGP scheme?
S P Setia: Only one award under the LTIP comprising both the ESOS and the ESGP has been granted so far in May 2013.
KiniBiz: As S P Setia also undertook a private placement of 15% of outstanding shares earlier this year, how will the potentially dilutive impact of the ESGP component affect shareholders?
S P Setia: The issuance of new shares pursuant to the ESGP award is not expected to materially dilute the existing shareholders’ shareholdings. Any potential impact will depend on the number of new shares to be issued which can only be determined at the point of the vesting of the ESGP awards on the date of vesting.
Following S P Setia’s response, KiniBiz has sent follow-up queries to S P Setia for further clarification on the various procedures established as a check-and-balance mechanism in ensuring that LTIP awards made are consistent with the group’s objectives as well as on the recipient and ESOS:ESGP composition of the LTIP award made in May. KiniBiz also asked for clarification whether the 15% determination method means that the 15% goalposts for subsequent LTIP awards are continuously shifted following the enlargement of outstanding shares after each previous award.
At press time, the group has yet to respond further as most of the group’s senior management are in London.
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