As per Scheme A, L&T employees will have the option to acquire a certain number if shares at the grant prices based on his or her performance and other parameters at the time of grating the option. Employees will be required to pay Rs 10 per option at the time of grant. The date of vesting will commence after a year from the grant and may extend upto four years from the date of grant. There would be a lock-in period of seven years or as may be decided by the compensation panel from time to time. On exercise, the employee will pay the balance grant price per share and the shares will be allotted to him.

The price of the employeeshares will be computed on the basis of the average of the high and low BSE quotes during the year for which the performance is evaluated. For ascertaining the appreciation, the price for the purpose will also be computed as the average of high & low BSE quotes during the period of 12 months ending on the day of exercise.

As per the second scheme, stock appreciation rights (SAR) are being proposed which will entitle the employee to get the difference between the price computed for the purpose of exercise and price computed for the purpose of grant. The difference, which is the appreciation, would be paid in the form of shares, the number of shares being the total appreciation as calculated above divided by the market price on the date of exercise.

The company will issue upto 5 per cent of its equity capital which is around 1.24 lakh shares. The company said that the vesting of shares may occur in tranches, subject to the terms and conditions of vesting as stipulated by the compensation committee. Themaximum numbers of options/SARs granted by per employee will not exceed the 0.05 per cent ceiling of the issued equity capital of the company as on March 31, 1999.

Though the SEBI rules do not permit extending the benefits of the ESOP, the company has decided to make a representation to the regulator seeking its permission to grant shares to the employee of its associate companies.

To make the equation simpler, L&T says that in the case of stock options, the shares are allotted to the employee on exercise of options and the employee pays the balance grant price per share. Whereas in the case of SAR, the amount of appreciation is given to the employee in the form of shares at the market price on the sate of exercise. The employee pays Rs 10 per share being the face value.

For example, in Scheme A, if the price of share for the purpose of grant is Rs 100, and the market price on the day of exercise is Rs 300, then appreciation per option would be Rs 200. While 1 share per option would be allotted to theemployee, the latter will have to pay Rs 100 per option.

In the Scheme B, on a Rs 100 share value, if the price of share for the purpose of exercise is Rs 250, and the market value is Rs 300, the appreciation per employee would be Rs 150. Shares per SAR, in this case would be 0.5 (ie Rs 150 divided by Rs 300), and the amount payable per SAR would be Rs 10.