ESOPs more preferred by Indian companies than MNCs, says EY Survey
- 88% of Indian companies prefer Employee Stock Option Plan
- Technology, telecom and media companies prefer stock-based incentive plans (37%)
New Delhi, 6 April, 2014: Indian companies, in comparison to MNCs, prefer the conventional Employee Stock Option Plans (ESOPs), suggests EY India’s report, titled Stock Based Incentive Survey 2014. An overwhelming 88% of Indian companies prefer ESOPs, which could be primarily because it leads to retention of employees and is easier to understand when compared to other stock-based incentive plans. While only 49% of the multinational companies (MNCs) respondents prefer ESOPs. The EY Survey also revealed that Employee Stock Purchase Plan (ESPP) is primarily used by MNCs.
Mapping the industry preferences, the report highlights that technology, telecom and media companies are more likely to roll out stock-based incentive plans (37%) followed by manufacturing and consumer goods (20%), healthcare and life sciences (14%), and financial services (11%).
In was interesting to notice that 87% of companies offer stock based incentive plans to only selective employees. Further, the survey re-emphasised that stock-based incentive plans aim to serve the dual purpose of promoting corporate performance and creating value for the employees. 50% of the respondents stated that both employer and employee-related factors are the key reasons for implementing stock-based incentive plans, which includes retention (16%), talent attraction, motivation, reward performance (9% each) and wealth creation for employees (7%).
Sonu Iyer, Partner & National Leader – Human Capital Services, EY says, “Though technology, media and telecom companies continue to lead the market when it comes to stock-based incentive plans, but a common theme of ‘hiring and retention of critical talent’ has ensured that successful and growing organizations across all sectors consider a compensation strategy married to stock-based incentive plans.”
The report indicates that out of the Indian companies surveyed, 47% have committed up to 3% of their paid up share capital toward stock-based incentive plans, while the majority of MNCs (33%) have committed more than 5% to 10% of the share capital for such plans. Thus, MNCs commit a higher capital towards stock-based incentive plans than Indian companies.
Sonu Iyer suggests that, “Design of the plan is truly critical for the success of a stock-based incentive plan. Adequate time must be invested in pre-plan brainstorming to align the interest of the employees and the company, taking into consideration industry and market trends, employee demographics, current and future business projections within the overall employee reward and retention framework.”
About the survey
EY’s Stock Based Incentive Survey 2014 is a step toward identifying the perspective of employers on stock-based incentive compensation schemes. The survey is aimed at understanding the broad trends and practices followed by Indian companies and MNCs operating in India on stock-based incentive plans. This survey was conducted online and through personal interviews between December 2013 and January 2014. It covered a representative panel of 110 senior level respondents, involved in the decision making of the affairs of the companies.
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