Institutional shareholders vote against logistics firm Delhivery's ESOP

Majority say no to the plan; new-age companies have faced similar hurdles

Recently-listed logistics firm Delhivery faced institutional shareholders’ ire as majority of them rejected the company’s employee stock ownership plan (ESOP).

The company had put to vote nine items for shareholder approval. These include Delhivery Employees Stock Option Plan 2012, Delhivery Employees Stock Option Plan II 2020, Delhivery Employees Stock Option Plan III 2020 and Delhivery Employees Stock Option Plan IV 2021 and related schemes, as well as Article of Associations.

According to the Securities and Exchange Board of India (Sebi) (Share Based Employee Benefits) Regulations 2014 (‘Sebi SBEB Regulations’), no company will make any fresh grant, which involves allotment or transfer of shares to its employees unless the pre-IPO ESOP scheme is ratified by shareholders after the IPO.

Hence, the company is seeking approval of shareholders through a special resolution for ratification of its pre-IPO schemes.

Though the resolutions were passed, according to Institutional Investor Advisory Services data, almost 72 per cent of the institutional shareholders voted against them. 

This is not the first time that a new-age company has faced shareholder ire on ESOP plans. Zomato, Nykaa and One97 Communications had also faced similar issues. In February, One97 Communication faced shareholder dissent on ESOPs.

An email sent to the company on the rejections remained unanswered.

IiAS — in its recommendation to institutional shareholders — called for voting against the resolutions.

“Part of the stock options has time-based vesting. Since these are given at deep discounts, Rs 1 versus the current market price of Rs 466.55, employees are already in-the-money at the time of the grants. ESOPs are ‘pay at risk’ options that employees accept at the time of grant. This is protected if the ESOPs are issued at significant discount to the market price, as is the case with these resolutions,” said IiAS in its report.

The note further added, “Vesting criteria for the residual stock options is linked to stock price. The share price is not in the control of the employee. Performance metrics must have a more holistic approach that drives both long-term and short-term business agenda for the company. Through separate resolutions, the company seeks to ratify the extension of the four pre-IPO ESOP schemes to employees of group companies, including subsidiaries.”

In case of Paytm, the three resolutions pertaining to ESOPs got over two-third ‘against’ votes from institutional investors.

In September 2021, Zomato had received over 60 per cent against votes from public institutions on various resolutions pertaining to ESOPs. It had also faced opposition from institutional investors on a resolution seeking their approval on amending its articles of association.

In February, Nykaa’s resolution to amend its articles of association got close to 80 per cent against votes from institutions. Its resolutions pertaining to ESOP schemes got close to 4 per cent against vote.

All the resolutions floated by these firms were passed comfortably, thanks to votes from non-public institutions and promoters.

However, the trend shows a wedge between new-age firms —which have so far relied on private money — and public investors.

Experts say the bone of contention is the deep discount being offered by these firms on their ESOPs.

“IiAS may recommend voting against stock option plans where the exercise price is at a significant discount (of over 20 per cent) to the market price on the date of grant. IiAS may make an exception in cases where vesting of the stock options is performance based,” said IiAS in its report.