Companies bet on ESOPs to retain employees, says survey

Private companies are mostly preferring employee stock option programmes as an incentive to retain staff, says a survey.
The Information Communication and Entertainment (ICE) sector continues to dominate the ESOP (Employee Stock Option Plan) space, according to leading consultancy KPMG in India.
The conclusions are based on a survey of nearly 460 multi nationals and listed firms in India. Out of the total respondents, 215 companies had either implemented or are planning to implement ESOP.
"Private companies are increasingly considering ESOPs as a compensation mechanism to meet its objectives... Allotment of equity shares under an ESOP continues to be the most popularly adopted incentive plans in India," it said.

As per the survey titled 'Employee Stock Options/Equity Incentives - Industry Insights' released today, employee retention continues to be one of the key drivers for companies preferring to provide ESOPs.
"Companies prefer to source the plan by way of issuing new shares under the plan vis-a-vis dilution by promoters and market purchase," it noted.

Besides, it was found that firms prefer to have a uniform plan for all employees rather than multiple types of plans for different people.
Parizad Sirwalla, Partner and Head - Global Mobility Services, Tax -- at KPMG in India said the changes in the companies law that provide clarity and aligns with Sebi guidelines on ESOPs would continue to make it an important compensation tool for attracting and retaining employees.

"The recent trends of multi-fold deals of management buy-outs and overall buoyancy in the stock market coupled with certain regulatory changes (New Sebi ESOP guidelines, corporate law provisions and proposed IFRS convergence) has been a driver for many companies to reconsider ESOPs," Sirwalla said.