Listed SMEs are increasingly offering equity to employees, shows data

Move seen as a way to attract talent, align staffer wealth creation with company growth

Employee stock ownership plans (Esops), more popularly associated with startups or large corporations, are now also increasingly making their presence felt in the small and medium enterprise (SME) segment. 

Around seven SMEs have made announcements on such plans in the ongoing financial year 2025-26 (FY26). This marks the third year in a row with at least half a dozen such companies making announcements, shows a Business Standard analysis of corporate announcements on the National Stock Exchange (NSE). Such announcements had been rarer in earlier years. 

Some of the companies that have made announcements on issuing stock to employees this year include telecom equipment firm Frog Innovations, cybersecurity provider TAC Infosec, and Proventus Agrocom, which provides customers with dry fruits, nuts, and seeds. 

D P Jhawar, managing director and cofounder at Proventus, said that their Esop programme has helped retention while enriching employees. 

“To date... (the company’s Esop programme) has enabled wealth creation of upwards of ₹1 crore for more than 15 employees. As an employer, we have observed stronger long-term alignment, sharper performance orientation, and improved retention in critical roles. Almost 80 per cent of the team has been with us for more than five years now,” he said. 

Emails sent to the other mentioned companies did not elicit any response. 

The Securities and Exchange Board of India (Sebi) allows SMEs to list on a separate segment on the stock exchange. This has lower requirements than the mainboard and acts as a way for companies to raise equity capital. Esops are a way for companies to reward key personnel by giving them a stake in the company. They have been a source of wealth creation in startups and can account for a significant part of compensation in large corporations. 

“There is more of a business case for SMEs than large companies,” said Shriram Subramanian, founder and managing director of domestic proxy advisor InGovern Research Services. A proxy advisory firm provides voting guidance to shareholders on company initiatives, including remuneration. 

Larger companies have well-known brands and there is a degree of stability to the employment on offer. It is often smaller and lesser-known companies which have difficulty in attracting the necessary talent than such larger players. They need to pay outsize compensation to get key employees on board. Cash compensation can be difficult in smaller companies, but Esops can provide the upside necessary to attract talent, pointed out Subramanian. 

Companies in the SME space are using Esops to reward employees and make them a part of the firm’s growth journey, said Mohini Varshneya, partner at Delhi-based Corporate Professionals. This is more prevalent in many SME companies, which are eventually eyeing a mainboard listing. Companies in some sectors, such as technology, feel the need for Esops in order to remain competitive in the hiring market. 

Key hires are often given the chance for significant wealth creation elsewhere in the technology space, such as startups, through stakes in the company for which they work. They seek similar rewards when joining SME ventures in the same domain, according to Varshneya, who does not believe this will be a short-term trend. “I think more of it will come,” she said. 

Sebi Chairman Tuhin Kanta Pandey had said earlier in February that regulatory and disclosure norms for SMEs are being examined to see if they can be relaxed to ensure greater ease of business while maintaining necessary safeguards for investors, Business Standard had reported. 

The Nifty SME Emerge Index, which tracks listed SMEs, is down 14.73 per cent for the year ending January 2026. The Nifty 50 index, which tracks larger companies, is up 7.71 per cent in the same period.