In a major move, Tata Motors has changed the dividend payout model of Jaguar Land Rover (JLR). The UK arm, which accounts for bulk of the parent Tata Motors' earnings, will now pay at least 20 per cent of its profit as dividend instead of a fixed sum. The dividend policy was changed in fiscal 2018, and as as a result, JLR paid 225 million pounds, 20 per cent of its profit, as dividend to Tata Motors.
The payout was 50 per cent higher than the fixed amounts JLR doled out in fiscal 2017. Tata Motors had acquired JLR a decade ago and the asset has been a money spinner for the parent. In fiscal 2019, JLR will pay 25 per cent of its profit as dividend, Tata Motors CFO PB Balaji said. While higher dividend boosts major shareholder Tata Motors' income, the Indian company, on the other hand, hasn't declared a dividend to its shareholders for nearly two years. Losses at its domestic operations had prevented Tata Motors from paying dividends.
Stock options to employees
Meanwhile, Tata Motors intends to hand over a little less than half a per cent of its equity to employees through a stock options plan. With this move, the auto major leaves behind the group's other big revenue generators like the $20 billion Tata Steel and the $19 billion TCS. Traditionally, the $103 billion Tata Goup has been reluctant to issue stocks to employees.
However, now, it plans to reward 200 employees - from executive directors to general managers with stock options, with plans to extend it to the junior management level subsequently. A senior Tata Motors executive said, “It was a big call for the company to take.” The employee ownership move will help to rein in attrition, which had increased from 8.5 per cent in fiscal 2017 to 10 per cent in fiscal 2018. Tata Motors' domestic business had 11,140 white collar staff as on March 31. To be taken up at the company's forthcoming annual shareholder meet for approval, the ESOP scheme will not exceed 0.4 per cent of the automaker's equity and will allow employees to buy Tata Motors' shares between 2021 and 2023.
Tata Motors CFO PB Balaji said, “This is to ring-fence critical talent during the turnaround phase and to match employee payoffs to the long-term gestation period of key initiatives like new product development.” The company has been making lot of efforts to become profitable on a standalone basis by enhancing sales, reducing costs and launching vehicles in time. In fiscal 2018, it narrowed its losses from £233.5 million in fiscal 2017 to £99.2 million.
