DoD for ESOPs as variable pay in PSUs to raise retail holding

State-owned companies may soon have to offer only Employee Stock Options (ESOPs) instead of cash as part of variable pay to staff if a proposal mooted by the Finance Ministry goes through.
The Department of Disinvestment under the ministry has suggested to the Department of Public Enterprises (DPE) that the Performance Related Pay (PRP) to PSU executives be in the form of ESOP so that employees can become part owners of the companies and have stake in their growth.
PRP is a variable component of the remuneration paid to the executives of CPSEs.
"We have suggested to the DPE that PSUs may be asked to offer ESOPs to make up for the variable pay component of the staff," a source told PTI.

Currently, the concept of giving ESOP as part of PRP is optional. A portion of the PRP can be paid in the form of ESOPs if employees opt for it.
"We want more retail holding in PSUs. By giving ESOPs as variable pay package both the employee and the company benefit," the source said.

Explaining the benefits of ESOPs, the source said that the employee would think he/she is part owner of the company and would want to work for the better profitability of the company.
If employees get equity in the PSU, that would help increase retail holding in the company.

In June last year, market regulator Sebi had made it mandatory for PSUs to to ensure at least 25 per cent public shareholding within three years.
If the ESOP plan goes through, then meeting the 25 per cent public holding limit would get easier for the disinvestment department as the present volatility in stock markets has somewhat dampened the disinvestment programme of the government.
The disinvestment department has a mammoth target of Rs 69,500 crore of which Rs 41,000 crore is expected to come from minority stake sale in PSUs and remaining Rs 28,500 crore from strategic stake sale.
Due to volatile market conditions, the government has so far been able to raise over Rs 12,600 crore through stake sale in four PSUs.

Last month the Finance Ministry had said it was considering ESOPs as performance bonus for top management of the public sector banks. Besides, start-ups tend to offer ESOPs to attract talent.