January 7, 2012, 4:35 pm

A Stock Exchange filing made last week by the People’s Leasing Company PLC, a People’s Bank subsidiary, did not attract the attention it deserved. Believe it or not, over 600 employees of the company, gifted free shares by the bank ahead of its listing on the Colombo Stock Exchange, had voluntarily returned them to their previous owner free, gratis and for nothing! Something out of Ripley? No, it really happened and the fact that a publicly owned institution was able to make it happen, hopefully with no ill feeling, is somewhat of a small miracle. It was done because the powerful People’s Bank union was not happy that some and not all their employees had benefited substantially from this largesse that had dropped on the laps of some of their colleagues. Given that the bank itself had no leasing department, PLC was in fact the leasing unit of the People’s Bank and any customer who sought leasing facilities at any of the bank’s branches were directed to PLC which had over the years grown into the market leader of the industry. There was thus a strong feeling within the People’s Bank that it was not the employees of PLC alone who were responsible for the growth of that company. It was the People’s Bank itself.

The union had picketed in front of PLC, issued bulletins and carried out a poster campaign protesting against the issue of the free shares. The matter had also been raised in parliament, a union official said. The end result was the decision to transfer the employee shares back to the People’s Bank for what was described as a “nil consideration.’’ The number of shares granted was certainly not small turkey. The Managing Director/CEO of PLC got over four million and some other senior employees over a million shares each. There were many who received over 100,000 shares each. Given that the Initial Public Offer of PLC was priced at Rs. 18 a share, the value of the share grants was massive by any reckoning and it is clear from the turn of events that there had been insufficient appreciation of what the gifting of a pot of gold to employees of one organization under the People’s Bank umbrella could mean within the parent company which employs thousands.

Now we know. It is true that the shares were “locked’’ – the beneficiaries were not permitted to sell them until a year had elapsed from the date of allotment, June 30, 2011. After that the recipients were free to do what they will. Whether it was a part of a compromise to facilitate the return the shares or not we do not know, but on Dec. 16, PLC paid a dividend of Rs. 0.50 a share and as the employees were shareholders on that date, they would have benefited. For those who got large allotments, the payout would have not been inconsiderable. Be that as it may, it would be useful for the government as a whole to reflect on what went wrong. It is unlikely that the decision of the People’s Bank to renounce 3.64 million shares of 28 million allotted to it to PLC employees when that company capitalized reserves of nearly Rs. 4.1 billion in June last year would have been taken without consultation. At least finance ministry if not cabinet approval would have been obtained. Given the relatively small number of employees at PLC, compared to the giant workforce of the People’s Bank, the number of shares granted to each of them would have been considerable in most cases and massive in quite a few. The period of service and the position held were taken into account in making the share grant, the PLC prospectus said and employees’ “commitment, dedication and service rendered to the company’’ recognized by the share grant.

President Premadasa pioneered the concept of free shares for employees when he wanted to push through the privatization of some state-owned enterprises in the teeth of union resistance. While generally 10 percent of the privatized organization was given free to the employees, in some cases where there were few employees and the gift would have therefore been massive, some adjustments were made. Workers in many state-owned estates and other organizations benefited from what the president innovatively called the “peoplization’’ of those entities including what was then Airlanka where some employees (and former employees) continue to hold shares. In the event most employees sold off their shares for ready cash with very few opting to hold on to them. Thus there was no real benefit to the privatized companies from employees acquiring and retaining a proprietary interest in them.

In the case of PLC, the new shares were created by the capitalization of a reserve of over Rs. 4 billion at Rs.146 per share. Thereafter each share was subdivided into 15, massively increasing the number of shares in issue. While the People’s Bank owning over 95 percent of the company was the major beneficiary, the employees who got free share allotments also did very nicely. The PLC IPO was fully subscribed at a time an overheated share market was beginning to lose steam but the share has been trading at below the issue price in recent weeks largely due to the sharp downturn in the market. Whether the employees would have been disheartened by the decision to reverse the share grant remains to be seen. PLC is on record saying that the shares were “voluntarily’’ returned. Be that as it may, they could not have been happy that their colleagues in the People’s Bank forced the issue. Nevertheless, state institutions must be circumspect in dishing out gravy from the public pot on to their employees’ plates with managers influencing such decisions being among the major beneficiaries. The cake can never be big enough to serve all and an element of jealousy in these matters is to be expected. Yet, the PLC management must be complimented for pulling off the reversal with no blood being shed.

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