 | | PICTURE SPEAK | |  | PRASHANT MEHTA
Head, Legal Affairs, Shoppers' Stop
"I feel this is a good hook to retain people in a high growth industry. My options have already trebled in value in less than three years." | | If you've missed striking it rich in one of the many game shows where you can make millions, there's still hope if your employer thinks the world of you. With stock markets on fire, employee stock options are back in fashion after falling from grace in 2001. Both listed and unlisted companies are rushing to issue stock options to employees to increase bonding with the professionals and change the owner-employee relationship into a more involved partnership. As a compensation tool, employees stock option plan (ESOP) backfired five years ago when start-ups used it either as a decoy to lure talent or when credible companies used it to check cash outflow. Infosys had to end its ESOPs in 2003 as it was facing human resource challenges because its options were linked to compensation. But today, with the economy firing on all cylinders-fuelled by demand as well as money supply both from public and private equity firms-ESOPs have never looked better. In a high-growth scenario, options work well as they are cash neutral for the company (the market pays) and most tax-efficient (capital gains tax can even be zero) for employees. Then, unlike in the past, where companies used shares as an alternative to cash, today ESOPs are well over and above the pay packet. So there is no downside if the stock price dips in poor market conditions. Shoppers' Stop is using this as a tool to reward its senior management. Says C.B. Nawalkar, CFO of the retail chain, "Linking ESOPs to compensation is like taking a call on the stock price. If companies are sure of their stock price then they can link it to compensation. But for Shoppers' Stop, it's over and above salaries." For instance, Air Deccan, which is in a situation similar to what Infosys was in 12 years ago, is currently adding 100 employees a month. With low-cost carriers fuelling the aviation boom in the country, the company is slated to grow at a rapid pace in the next few years. Says Mohan Kumar, chief financial director of the airlines, "We are on a high growth trajectory and to attract talent from other industries, we have to provide an attraction well over the compensation." Hence, ESOPs work fantastically in a high-growth scenario. | | PICTURE SPEAK | |  | BHUPINDER PAUL CHEEMA
Head of Engineering, Air Deccan
"The ESOPs are a bonus and what really excites me is the growth of the company." | | Employees, too, are excited. For Bhupinder Paul Cheema, former director of engineering with the Indian Air Force, Air Deccan has given a new lease of life to his career. Now employed with Air Deccan as the head of engineering, Cheema has received 20,000 shares from the company at Rs 65 each, even though the value of the share at the time of issue was Rs 100. The company has given shares to employees like Cheema at a discount so that the upside on listing is theirs from the start. The first vesting of 15 per cent will happen when the company lists later this year. Cheema admits that even though he's compensated well, "the ESOPs are a bonus and what really excites me is the growth of the company". ESOPs make employees a stakeholder in the most practical sense of the term. By issuing options before listing, companies like Shoppers' Stop and Air Deccan have become trendsetters. Companies are also trying to broaden the loop by rewarding more employees. Shobha Sreenivasan, senior gm, accounts, Matrix Labs, says, "I've been with Matrix for 12 years and ESOPs help retain people. Most people have got options but the quantum depends on seniority and the number of years." | | PICTURE SPEAK | |  | SHOBHA SREENIVASAN
Senior GM, Accounts, Matrix Labs
"It makes me feel good. I may use this to buy property. ESOPs give people an opportunity to realise their dreams." | | Shoppers' Stop issued options to only 10 employees when it started in 2002-03; it was later increased to 75 employees in 2005. The options have been issued at an average market price of six months as the company was listed by then. Prashant Mehta, head of legal affairs at Shoppers' Stop, has been with the company for four years and has already received four tranches of options at Rs 10 each in 2003 when the programme was instituted, Rs 150 the next year, Rs 240 in 2005 and Rs 384 soon after the company was listed. Mehta says, "I benefited since I was with the company from the time the ESOP programme started because then the issue price was very low." Rather than issuing ESOPs at high market prices, companies are opting for ESOPs before listing as they can then offer the best value to their employees as the price is fixed at a notional valuation, which is typically lower than the listing price. "We have issued shares at Rs 65 per share to our employees, which is Rs 35 less than benchmark valuation and this will be expensed over five years and thus will not impact our balancesheet," says Mohan Kumar of Air Deccan. Last but not the least is the vesting period. Says Sreenivasan, "This is the first option we got and vesting period is four years and 25 per cent of options are exercised each year. I got it for Rs 143 and today's price is Rs 280." Earlier, it took years before employees could convert their options into shares after the vesting period, which ranged from three to five years. But now firms are more realistic, allowing employees to vest a part of their options after the first year and the remaining in the next couple of years. So, are you still an employee or a stakeholder in your company?
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