At the end of November 2019, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) officially announced the plan to issue 31 million ESOP (employee stock ownership plan) shares to officials and employees, half a year later than expected to be approved at the Annual general shareholders’ meeting 2019. Between the two options of issuing new shares or selling treasury shares, VPBank decided to use the available treasury stock.
Supplementing 50 million shares after the October 2019 acquisition, VPBank currently owns 123.2 million treasury shares, worth more than 3.6 trillion dong, equivalent to an average of 29, 227 dong per share. Meanwhile, the issue price of ESOP shares is only about one third (10,000 dong per share), the surplus of VPBank’s equity is estimated to be nearly 600 billion dong, if fully distributed.
Since the beginning of the year, many banks have programmed as well as rewarded employees by shares, including Southeast Asia Commercial Joint Stock Bank (SeABank), Vietnam International Commercial Joint Stock Bank (VIB), and Military Commercial Joint Stock Bank (MBMBBank) also announced the issuance of 43 million shares, equivalent to two percent of charter capital, after two installments in 2015 (15 million shares) and 2017 (17 million shares). Asia Commercial Joint Stock Bank (ACB) sells treasury shares to serve as bonus shares for distribution to employees.
The method of using treasury shares sold to employees is quite common. In mid-2017, when the stock was not listed, Techcombank distributed nearly 14.7 million shares at the price of 10,000 dong, while these shares were acquired by the bank from strategic shareholder HSBC at the average price of 23,445 dong per share.
With the incentive to retain talent, the price of ESOP shares is often lower than the market price and comes with a time limit on transfer. With VPBank, the above ESOP shares will be gradually released in a three-year roadmap. If officials and employees leave, they will have to resell the shares at the purchased price. If held until the end of the transfer restriction period, the difference when reselling shares will be the income they gain, “profit taking” or “cutting losses” depends on the price movement of the stock.
Issuing ESOP shares by treasury stock brings two benefits: both to retain talent and not to increase the amount of existing shares, thereby avoiding the phenomenon of dilution of stocks. Besides, the buying of treasury stocks often has a positive effect supporting stock prices. The interests of shareholders, officials and employees are somewhat reconciled.
Although the employee’s future income is not a bank expense to pay employees, not directly deducted from the company’s annual profit, a part of the retained profit of the enterprise has been reduced due to the policy. Particularly, in the latest issue of VPBank, nearly 600 billion dong was lost due to the difference in purchase and sale prices.
Some ESOP programmes of some banks usually focus on senior staff. As in the case of VPBank, half of the 2019 preferred shares are reserved for general director Nguyen Duc Vinh (15.4 million shares). The issuance of ESOP shares of Techcombank in recent three years is only for a very small percentage of personnel.
In terms of income, besides the main income from salaries, the number of ESOP shares that can be received is certainly a factor for employees to consider and decide whether to go or stay in an organisation. The positive side of the programme is the motivation, the adherence to banking business, which reflects on the company’s value, impact on the rise and fall of stock prices. But buying ESOP shares and becoming the owner of the bank’s shares is also a “bet” for them.
