While Vijay Shekhar Sharma is not a promoter, he has powers similar to one, including a potential permanent seat on the board, according to a report.
According to proxy advice firm Institutional Investor Advisory Services, Paytm may be skirting regulations by granting staff stock options to founder and CEO Vijay Shekhar Sharma.
While Mr Sharma is not categorized as a promoter – Indian slang for controlling shareholder – he has privileges similar to one, including a potential permanent membership on the board, according to an IiAS note issued on Friday.
“These rules and mechanisms provide Vijay Shekhar Sharma with ‘entrenchment’ equivalent to those enjoyed by promoter families in more traditional enterprises,” according to IiAS.
It further stated that the regulator must investigate Mr. Sharma’s decision to reduce his direct shareholding by moving shares to a family trust, without which he would be ineligible for the Employee Stock Option Plan.
Stock options are not permitted in India for promoters or directors who own more than 10% of the company directly or indirectly. Paytm’s stock has dropped 75% since its initial public offering last year, prompting Sharma to say in April that his stock grants will vest only when the company’s market value topped the IPO level on a “sustained basis.”
In response to the IiAS investigation, Paytm’s spokeswoman informed Bloomberg that the business had followed all applicable legislation regulations in designating Mr. Sharma as a non-promoter and complied with the process for the issue of ESOPs, including shareholder approval. His salary has been stable since November 2020 and will stay so until 2025, according to the spokeswoman.
Mr. Sharma was given 21 million options in the fiscal year ended in March 2022, valued at $500 million at the time. He was declassified as a promoter in 2021 and reduced his direct interest to 9.1% before the IPO, down from 14.7% a year earlier, by transferring shares to a family trust.
Paytm’s actual name, One 97 Communications Ltd., is one of several Indian businesses that have not designated its founders as promoters, according to IiAS.
“It appears that numerous founders may be engaging in regulatory arbitrage between the privileges associated with a promoter and the financial rewards associated with not being recognized as one,” IiAS added. “Regulations must keep up with these structures.”