Steel producer ArcelorMittal South Africa (AMSA) received shareholder support last month for a five-year employee share ownership plan (Esop), which formed part of a larger strategy to improve its broad-based black economic-empowerment (BBBEE) rating to level three under South Africa’s evolving empowerment regulations.

AMSA insisted that the empowerment push fell outside the ambit of ongoing talks with government aimed at improving protection for the industry, which was battling to remain competitive and profitable in the face of rising import competition.

However, AMSA CEO Paul O’Flaherty had indicated previously that the country’s largest steel producer had been a “poor citizen” in the areas of transformation and pricing and that it had the backing of the bigger ArcelorMittal group and Lakshmi Mittal to improve its performance in both areas.

O’Flaherty announced earlier this year that the group would implement a 5% Esop, which would be followed up by a 21% empowerment transaction with a strategic partner. An earlier, highly controversial, R9-billion BEE deal with the politically connected Ayigobi Consortium was eventually abandoned.

Known as the Ikageng Esop, the scheme would be implemented on October 1 through a trust, which would hold 4.7% of the issued share capital of the company. Sourced from treasury shares held by a subsidiary, the shares were currently valued at around R240-million, having been bought back previously for nearly R2-billion.

The scheme would continue until October 30, 2020, and was open to all of AMSA’s 8 000 permanent employees, black and white, who did not already participate in share schemes.

But trade union Solidarity indicated it would file a grievance against the company on behalf of its members, who believe the scheme discriminated against white employees. Solidarity metal and engineering industry head Marius Croucamp, said the scheme entails that "black beneficiaries earn returns of 15% more than non-designated beneficiaries".

Should the grievance not by resolved internally within 33 days, Solidarity said it would refer the dispute to the Commission for Conciliation, Mediation and Arbitration.

Head of human resources, transformation and corporate communications Themba Nkosi said the Esop represented the final component, within management’s control, of a larger empowerment thrust designed to raise the JSE-listed group’s BBBEE rating. The other elements included progress in the areas of enterprise development, supplier development, employment equity and socioeconomic development.

However, to attain the level three rating targeted, a direct equity-ownership transaction would also have to be implemented.

Under current endeavours, AMSA was optimistic of attaining a level five rating under South Africa’s BBBEE Codes of Good Practice, where level one represented the highest recognition level possible.

“While we have made tremendous strides in terms of our compliance with South Africa’s transformation requirements, the one area that was lacking was on our equity ownership. This scheme puts us on a path towards a more broad-based ownership model for AMSA,” Nkosi said.

Participating employees would benefit financially from dividends or capital distributions declared during the length of the scheme. On the expiry date, participating employees could choose to receive the cash value for their allocated ‘Trust Units’, or retain the AMSA shares at no cost.