Unique Dual HLL & Unilever Stock Grant Scheme

The scheme will cover all current HLL managers (including Directors) and management trainees. Fresh recruits into the management cadre too will be entitled to it from their very first year with the company. HLL inducts about 150 trainees and direct recruits into the management cadre every year.

The HLL Chairman, Mr. M.S. Banga, has said, "The objective of the scheme is to strengthen the linkage between the manager's performance and shareholder value creation, and provide the manager with a stake in the wealth they generate. It is linked to the shares of both HLL and Unilever, and designed to align managerial performance to both HLL's national operations and Unilever's global strategy. The scheme gives every manager an opportunity to own HLL shares. It is one more step in meeting the aspirations of today's talent."

The stock grant is linked to Variable Pay, which is a sizeable component of an HLL manager's compensation. Depending upon a manager's level and performance, Variable Pay would go upto as much as 75 to 120% of Basic Salary. Variable Pay is linked to the achievement of topline and bottomline targets and individual performance.

As per the SGS, a manager henceforth can choose to invest one-fourth of the Variable Pay in HLL stocks, at the ruling market price, with a lock-in period of 5 years.

After five years the manager can trade on these shares. If a manager opts to invest in stocks, HLL on its own will notionally contribute a matching amount (an additional one-fourth of the Variable Pay) in the form of shadow Unilever shares. This amount will be divided into units, as though they were Unilever stocks, at the ruling price of the Unilever share in the London Stock Exchange. After 5 years, the manager will be entitled to HLL shares, at the then ruling market price, equivalent to the then market value of these shadow Unilever shares. The manager will be able to trade on these HLL shares too. HLL is using shadow Unilever stocks to be in line with the current exchange control regulations. Once the Rupee becomes fully convertible, the intention would be to replace shadow shares with real Unilever shares.

The alignment with corporate goals is far stronger in a Stock Grant plan, as in the HLL scheme, because the manager actually invests a part of the Variable Pay in company stocks and carries the associated risks along with the potential benefits.

The company revises its compensation annually, following a benchmarking and review process. This scheme is an important part of the new compensation framework from 2001.

The SGS is among several steps taken by HLL to attract and retain top talent. The company has put in place a process to help identify potential business leaders much earlier in their careers than done before. Far-reaching changes have been made to the organisation structure, disaggregating into smaller yet independent business units to bring about greater focus; this will also provide further business leadership opportunities for managers, as and when they are ready. HLL has also implemented a new Business Leadership Programme for its management trainees.

Illustraton of the stock grant scheme

Year 2001

Assume that Variable Pay earned is Rs.80,000, one-fourth of which is Rs.20,000; the current HLL share price Rs.200; and the current Unilever PLC share price Rs.400.

If a manager opts for the Stock Grant Scheme, s/he will get a bonus of Rs.60,000 in cash and will also invest in 100 (Rs.20,000/Rs.200) HLL shares. These shares will be locked in for 5 years.

Simultaneously, HLL will notionally contribute a matching amount of Rs.20,000 in the form of 50 (Rs.20,000/Rs.400) shadow Unilever PLC shares.

Year 2006

After 5 years, assume that the HLL share price is Rs.400, and the Unilever PLC share price Rs.800.

The manager will be free to trade on the 100 HLL shares, the value of which then is Rs.40,000.

The value of the 50 shadow Unilever PLC shares then is Rs.40,000. The manager will receive 100 (Rs.40,000/Rs.400) HLL shares, in lieu of the shadow Unilever PLC shares.

In total, the manager will have 200 HLL shares, valued at Rs.80,000.