EMPLOYEE stock option plans were currency till a short while ago; they were also seen as signs of the Indian corporate sector accepting global compensation practices. With the high profile IT sector in a downturn, what happens to the options which have gone underwater?

Underwater options are those which are now below the market price. When an option is granted, the employee pays an exercise price; with a lower market price, he winds up paying a higher exercise price. Which makes the option a less attractive proposition.

In a recent, country-wide survey of 15 companies from the IT and other sectors, Esop Direct, part of KP Esop Consulting, a Pune-based consultancy, found that 73 per cent of the options granted are under water. This survey is a follow-up of its earlier survey in May of the downside of the Esop story.

In the current survey, of the 15 companies surveyed, 80 per cent were listed, providing an easily available market value, while 73.33 per cent of those surveyed were from the IT sector. The 26.67 per cent non-IT sector was largely represented by services.

Globally, when an option goes underwater, it is corrected through a re-pricing of the option. There is a further refinement to this: a selective re-pricing, directly related to the individual’s level of responsibility.

Thus, if a senior member of the team is responsible for the poor performance, why not make him (or her) pay more.

- Gouri Agtey Athale

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