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 Guruji.com, 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
"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.