The employee stock options, which lost its charm following the dot-com bust of late 90s and crashing markets, are regaining popularity with more and more companies using them to attract and retain talent, say industry insiders.
Companies across sectors and from large caps (Wipro, HCL) to medium (Orchid, Geometric Software, Helios & Matheson) and to relatively small caps (Polaris, Kale Consultants) -- all have come out with ESOP schemes in the recent past, thanks to booming stock markets, which make the scheme quite attractive.
With cut-throat competition, soaring attrition rates and poaching of employees by rival companies becoming the norm in the Indian industry, the booming stock markets have come as a real blessing for HR managers to retain talent through ESOPs, they explain.
"ESOPs are regaining the charm they had lost. But for a scheme like the ESOPs to be attractive for a company, it first has to be attractive to employees in question," says Sangeeta Mahurkar Rao, associate vice president, Persistent Systems.
According to G K Murali Krishna, managing director of Chennai-based mid-cap IT firm Helios & Matheson, ESOPs are the right way to attract talented workforce as the company plans to expand operations.
The company had recently approved an ESOP scheme, which would constitute two per cent of its current equity.
"Helios & Matheson is on a strong growth traction. ESOP will help us attract and retain high performing individuals, who will play a key role in taking the company to the next level," explains V Ramachandiran, its chairman.
"Stock options are a kind of employee benefit plan, similar in some ways to a profit-sharing plan and the idea behind the scheme is to attract and retain talent, rather than offer it as part of the regular salary package. This thereby motivates employees to participate in the company's growth," Rao says.
Recently, pharma major Orchid Chemicals & Pharmaceuticals had issued about 60,000 shares to employees at Rs 243-252 range (current market price is Rs 370-range), Polaris Software Lab issued the shares to employees at about Rs 115-range, compared to the current market price hovering around Rs 150-range.
ESOPs usually have a lock-in period of two-three years, which would ensure that the employees would stick to the company for a certain period of time. However, on the pricing front, it varies between companies.
"The normal way of pricing ESOPs are by taking an average price of shares trading on the stock market for that preceding week," points out Anand Khare, HR manager, Kale Consultants.
"Strike price is the key for the attraction of ESOPs. If the strike price is high, employees may not find it lucrative as the need for liquidity is high to exercise the option," he adds.
Anuj Kumar, vice president, HR of Induslogic, says though ESOPs are regaining lost charm, "people are not giving enough value to it while negotiating salaries, except top management levels. They look at ESOPs over and above competitive salary," he says.
Normally ESOPs are discounted at around 15 per cent from the market price at the time of grant for listed companies.
For pre-IPO stocks, the revenue is divided by the total shares to arrive at a value.
"The chances of employees creating wealth with ESOPs are more in pre-IPO companies," says Kumar of Induslogic. While some companies offer ESOP to senior and top management, many companies are now giving ESOPs to employees who have completed more than one years at that particular company.
"At Kale (Kale Consultants), 80-85 per cent of employees are covered at all levels," informs Khare, HR manager of Kale Consultants.
"At Induslogic, all employees who have completed one year with the company, own a part of Induslogic. We strongly believe in sharing the gains with all our employees and therefore, everyone is covered regardless of level. Our policy on ESOP is in line with our value system of teamwork," Kumar adds.
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