Is ESOP a Favourable Way to Retain Top Talent?

An organization is run by employees and the output of their work determines how well the organization performs. Right from the CXO level folks all the way down to the entry level executives, everyone has a function to execute. Strategic decisions aside, it is the performance of the workforce that gets the entity operational and in turn successful. In this scenario, how would you compensate the top performers? What could make them stick to their company and avoid job swaps? 

Well, while most of the companies provide a higher compensation for retaining good talent, there is an alternative option for providing stock options. Employee Stock Option Plans(ESOP) was initially exercised in India by IT sector companies around the end of the 20th century. Post, which, many organizations have adopted this measure to retain loyal employees who would wish to grow along with the organization. 

The options are provided to deserving employees during the time of appraisal or simply during the time of joining if it is a startup. Then, there is a vesting period, post which, the employees can purchase the allocated shares of the company at a price specified during the vesting. During this time, it is upon the will of the employee to purchase these shares or pass it on. Ideally, ESOP varies from 0.25% to 8% of the stake, depending on the seniority of the professional. 

There are statutory obligations relating to Valuation of Shares during the time of allotment by a Merchant Banker for Income Tax Act. Do write to us at corporate@resurgentindia.com for ESOP valuations using best fit and most relevant approaches at short Turn around Times.