Module 7 : Reward and Recognition
Employee Stock Option plans have been in existence in India for over a decade. The focus on stock plans however began in the early nineties with the growth in stock prices and the IT industry. The earliest large schemes were that of Wipro, Infosys and Mastek. It was however only since 1996 that the true value of these schemes began to be understood by both employees and companies. Hence the number of IT companies offering ESOP plans is still well below 50%.
A large number of companies however are now realising the potential of ESOP as an effective retention tool while making the market bear the costs. The success of the stock plans of major companies like Infosys, Satyam, Hughes, HCL Technologies have made it possible to make total compensation inclusive of stock on par with international compensation levels.
ESOP schemes as yet do not have any tax advantage for either the employer or employee in India . The government has however in the last year clarified several key aspects of stock plans in terms of SEBI guidelines for issue and administration, perceived corporate governance issues, tax clarifications and accounting guidelines. US practice in this respect has been a major guide especially since many Indian companies would like to register on US exchanges.
We have summarised the existing practices on ESOP schemes and the emerging trends. Issues such as non compete clauses have also become common as part of such schemes. However we find that most companies find the pressure to give stocks widely due to the hype on ESOP a major issue in deciding on their approach to implementing such plans. The volatility in the stock markets both domestically and internationally and the inexperience with ESOP has posed many thorny issues in recent months.
Until recently most companies did not have to deal with stock plans being "under water", that is, market prices being below issue prices. Since compensation was seen to be clearly traded off by stock, employee communication has not always been clear on this aspect resulting in disappointments. The need for addressing employee communication with more care is a learning that most companies shared.
The issue of dealing with complex issues such as taxation in several countries of such plans, coverage of NRIs, foreigners, repatriation issues etc have been faced by companies in implementation. The plans increasingly therefore are beginning to capture all elements of international plans.
Multinational companies have extended their international stock plans to employees. These include both stock option plans and in very few cases Employee Stock purchase plans. Most stock option plans implemented in India have been "cashless" exercise plans. Overall multinational plans have not been as valuable as the local plans due to the higher market increases of local IT stock in recent times.
