Private lenders use stock option bait to retain talent

Time opportune, with market buoyancy and entry of new entities

Leading private sector lenders have stepped up issuance of stock options to ensure retention of needed talent, amid the entry of new entities and overall buoyancy in the financial services segment.

In recent weeks, HDFC Bank, YES Bank, Axis Bank and ICICI Bank have issued equity shares under their employee stock option plan (Esop). The move, analysts said, signals imminent talent churn in the segment. ESOP issuance is common among employers wishing to reward and retain staffers. “Of late, there has been a lot of shuffling in financial services. With return of the bull market, it is increasingly important for employers to hold back employees looking for greener pastures,” said G Chokkalingam, founder of Equinomics Research & Advisory.

The shares of banking and financial services companies have seen a healthy run this year. An appreciation in share price results in greater wealth creation for stock options holders. “Esops are fantastic wealth creators and a huge draw for employees, especially the younger talent these days. As earning loyalty isn’t an easy concept any more, the younger talent needs to be incentivised through such benefits,” said the source mentioned earlier.

Since April, the stock of YES Bank has risen 51 per cent, ICICI Bank’s by 26 per cent and HDFC Bank by 14 per cent. Axis Bank, which exercised a stock-split in July, has risen 43 per cent.

State-owned lenders might also join the Esop issuance route. Recent media reports quoted State Bank of India head Arundhati Bhattacharya as saying it was mulling this. Public sector banks are at a higher risk of losing talent than those privately owned, say analysts

“Increasingly, there is higher pressure on public sector units to improve their performance. Esop issuances work as an incentive and a performance-driven reward for employees of such banks,” said Harshu Ghate, co-founder and head of ESOP Direct, a service provider in the area of equity compensation.

Supply of talent is also likely to come under pressure with the new banking licences issued to the IDFC group and West Bengal-based Bandhan Financial Services. There have already been several mid-level and senior-level exits of employees to join these new institutions.