Traditional firms also take stock options route for staff retention.
Rajeshwari Sharma

Posted on [MONDAY, MARCH 3, 2008]


New Delhi: Chennai-based Murugappa Group will soon join several other companies from the traditional sectors that plan to offer employee stock option plans (Esops) for the first time to attract and retain talent. The Rs8,500 crore group, which is more than 100 years old, with interests in engineering, sanitaryware, finance and plantations, will offer Esops to senior executives in five of its companies.

"Esops are an ideal way of acknowledging the good work done by employees and sharing the wealth we have created with their help," says Sridhar Ganesh, director, human resources, Murugappa Group.

Many companies across sectors such as real estate, aviation, banking and financial services plan to offer Esops to their employees for the first time.

Some leading names include Omaxe Ltd, DLF Ltd, Purvankara Projects Ltd, Bangalore-based search engine start-up, wind energy company Suzlon Energy Ltd, UTI Mutual Fund, Industrial Development Bank of India Ltd, State Bank of India and National Aviation Co. of India Ltd, the company created from the merger of Air India and Indian Airlines.

In India, while information technology and professional services companies have used Esops aggressively to attract, retain and reward talent, traditional sector companies have used the tool sparingly.

"IT companies used Esops to remain competitive with their multinational peers, who offered big packets and stock options to their employees," says Vikas Vasal, executive director of consulting firm KPMG.

But with the traditional sector companies getting caught in the war for talent following the increasing competition as well as the entry of multinationals, Esops are finding their way among them as well.

According to Harshu Ghate, managing director, Esop Direct, an Esop consulting firm, the number of non-IT/ITeS companies offering stock options has consistently gone up in the past two years.

Companies such as Nimbus Communications Ltd, Dabur Pharma Ltd, Allcargo Global Logistics Ltd, Matrix Laboratories Ltd, Aditya Birla Retail Ltd, Indiabulls Financial Services Ltd and Motilal Oswal Financial Services Ltd are some of the leading names that recently adopted Esops.

"In a situation, where employees start getting irresistible job offers soon after joining a company, stock options help retain talent without disturbing salary structures," says Arvind Parakh, chief executive officer, strategy and finance, Omaxe Ltd.

According to Esop Direct, currently, around 700-800 listed companies offer stock options with more than 45% of them from the IT/ITeS sector. The spurt in offering Esops comes at a time when the stock markets have been particularly quite volatile. Also, the incentive is now taxed at the hands of employees in the form of fringe benefit tax (FBT). Yet, companies feel stock options will find favour with employees. "It's a long-term incentive and wouldn't be overly impacted by bouts of short-term volatility," says Murugappa Group's Ganesh.

Some experts agree. "Employees can always defer the time of cashing out if the markets are turbulent," says Ghate. "The recent market fall, for instance, was only notional for employees. There was no cash loss since they had not paid for the shares," says Ghate of Esop Direct.

HR managers across companies say FBT will also not impact the attractiveness of Esops in the longer run.

"Though Esops come with a tax liability, there is still a lot of gains to be made mainly due to the market appreciation of the shares, which does happen over a longer period of time," says tax consultant Vasal.

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