Stock options, the Indian IT sector is discovering, are a cure that kills. They were (and still are, by some firms) hailed as the perfect way to hire, retain and motivate the best talent, often without having to shell out a huge amount as salaries. The concept of total compensation that gained ground in India in the 1990s was based on the growing realisation among companies that they could get away with paying their employees below-market salaries as long as they offered them stock that more than made up. If the it companies were among the first to adopt this practice, it was because their stock was more fungible than that of companies from other sectors, even in the early-to-mid-1990s, which is when the phenomenon of stock options really caught on.

Most stock options were (and are) issued with a vesting period long enough (five to seven years) for the company to believe it had (has) addressed the immediate issue of retention; seven years is a long time, especially in the it sector, where the current attrition rate of between 15 per cent and 20 per cent is considered healthy (the rate would suggest that it is mathematically possible that none of an organisation's employees who are around at the beginning of Year 1 are there at the end of Year 7). Stock options also ensured that the costs of it companies (salaries constitute a large chunk) remained low. And there were (and are) enough grey areas in taxation laws regarding stock options to have both the company and the employee come out on top.

Stock options democratise ownership in the companies that issue them. No longer do employees work for someone else. They, in a way, work for themselves. The performance of companies is reflected in their stock price; if they do better, their stock soars; and the stock options are worth more. The magnitude of money involved (from a few tens of lakhs to even a few tens of crores) is usually adequate to retain employees and motivate them to deliver their best. Even today, for salarymen, a nest egg of a few crores is a big thing. The law of diminishing returns did exert its influence-X, allotted stock options when the stock was trading at Rs 4,000 could obviously not look forward to as much money as Y, who was allotted stock options when the stock was trading at Rs 2,000; then, X could look forward to some appreciation as long as the company continued to grow-but the stock-based compensation model did continue to work, through stock market booms and busts.

The late 1990s-not surprisingly, these years also marked an inflection point for the Indian it sector, with y2k work helping them double in size every year for two to three years in a row-was when the stock option frenzy reached its peak. Over the next two years, a large number of executives at India's best known it services firm Infosys (which is a pioneer as far as stock option programmes are concerned), and, to a lesser extent, at other firms, will suddenly find themselves richer (as their options vest). Money, especially lots of it, is an empowering thing. Suddenly, these executives will find themselves rich enough not to have to work for a living. Some will leave to do things they have always wanted to (paint, write a book, raise a family); others will turn entrepreneurs; and still others may just walk away when things do not work the way they want them to at work. In effect, options that vest are every salaryman's dream, F### Y## money that allows employees the freedom to quit on a whim.

The thing is, stock options are no longer exclusive to the Indian it industry. A slew of companies from other industries has adopted them whole-heartedly, convinced that they offer the best way to hire, retain, and motivate the finest talent available. As these options vest, however, such companies will realise that the result has been the opposite. Rather than raise exit-barriers (for employees seeking a change) stock options lower them. Then, there is the original question that remains unanswered: if not stock options (as a panacea for key hr challenges), then what?