There was a time in techdom when employees used to say, "Will work for equity." ESOP or the Employee Stock Option Plan was considered to be a must have in any compensation package for any tech geek worth his salt. There were instances wherein much sought after employees used to negotiate their compensation so that it was skewed in favour of equity. Those were the halcyon days when tech stocks had only one way to go. Up !

How times have changed. As markets witness a bloodbath with particular hammering of Infotech stocks, many of the techies who sought their compensation through equity are ruing the decision, as in several instances the exercise price of the share far exceeds their current market price. Take for instance Polaris Software. The employee stock exercise price was at Rs 480 per share. Currently the share quotes at Rs 230 approximately. A steep drop of more than 50 per cent on the exercise price.

Also it is not just a question of decline in the market price. More than 105 employees of Infosys who were granted Esop in 1996 had their shares vested in March, 2001. Several of them have seen paper erosion of their wealth as the stocks have crashed from a 52-week high of nearly Rs 11,000 to the current price of around Rs 4,000. Even assuming that at the lower end, the employees exercise their 500 shares, they have incurred erosion in wealth up to the extent of Rs 30 lakh each. Though the exercise price in the case of Infosys was Rs 99 per share, warrant is still considerably lower than the market price of the scrip, the employees have seen an enormous decrease in their paper wealth.

In the case of Wipro, the figures are even more startling. The company issued 3.5 lakh options to 4,700 employees approximately, at an exercise price of Rs 2,380 per share. Currently the scrip trades around Rs 1,400. Even those of Wipro’s employees who were earlier granted 2.6 lakh options at an exercise price of Rs 1,850, have seen their options go under water.

Avinash Vashistha, Managing Director of neoIT says, that it is difficult to compensate for the difference in the exercise price and the market price, either by cash or reissue at a lower price. "This is because it directly impacts the cash position of the company and will not be well received by the other shareholders. However, it would be a good idea to issue bonus shares at current market value. This would ensure that there is an incentive as soon as the market turns up for the better. Our board has recently approved the award of a very generous stock option package."

Several others like Adobe Systems seem to have adopted a similar approach. The company has announced a fresh stock offering of about 4 million shares to its employees worldwide to compensate for the erosion in wealth.

Says Vasistha, "Apart from ESOP, companies can set aside a certain amount of budget for employee's cash incentive program. The incentive could be given to individuals based on their performance targets, business unit performance and overall performance of the company. This ensures that employees are compensated and feel motivated based on the company and their performance, rather than just the woes of the market or economy in general. Adding further to this he expresses, "another excellent way to recognise and reward your key employees is to identify the critical key resources, top performers and offer them job rotation, fast track career options, cash bonus and higher salary increments."