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Junior staff prefer cash to stock options

Stock options as a tool for retention seem to be falling out of favour with junior and middle-level executives in India, reports Rajeshwari Sharma.

business Updated: Oct 05, 2007 20:42 IST
Rajeshwari Sharma
Rajeshwari Sharma
Hindustan Times

Stock options as a tool for retention seem to be falling out of favour with junior and middle-level executives in India.

Although a number of companies, such as iGATE Global Solutions, Satyam Computer Services, HCL Technologies, NIIT Technologies, GlaxoSmithKline Consumer Healthcare, Ranbaxy Laboratories, Mahindra & Mahindra, ICICI Bank and Dabur India cover junior managers under their ESOPs (employee stock options plans), they are increasingly realising that ESOPs aren't all that popular among certain employees.

ICICI Bank has come to the conclusion that an ESOP is less attractive to junior managers who would rather get cash rewards. It has since decided to withdraw a stocks scheme for junior-level employees. K Ramkumar, group head, HR at ICICI Bank, said: "It is clearly about cash. In our enthusiasm to use ESOPs as a tool to retain and reward top talent in the junior level, we extended the scheme, but since it didn't have any desired effect we suspended the offering."

Curiously, the decision to introduce long-term benefits for junior employees at the bank was made after an internal survey showed many in favour of stock options. While ESOPs are still popular among information technology companies, there have been prominent cases of pullbacks.

Infosys Technologies, for instance, suspended its stock options offering to all employees in July 2004.

"While technology companies have been slightly more successful with stock options as a retention tool, most companies have not been able to retain their junior to mid-level managers with the offering," said Sandeep Chaudhary, business leader-India, Hewitt Associates.

"It's about here and now. In a booming market, why would an employee opt to wait for a few lakhs for three to five years when companies are luring them with huge amounts of cash to get them," said Prabir Jha, global head, human resources, Dr Reddy's Laboratories.

The different profile of junior-level employees, who typically don't seek long-term careers with one organisation, is another crucial factor. "They are young, restless and want instant gratification in everything they do," said P Dwarakanath, president, National Human Resource Development Network and director, group human capital, Max India.

Meanwhile, companies that have not extended stock options to junior staff say they want to keep share dilution within manageable levels. Many companies, restrict it to their senior and middle management, who are critical to the growth of organisation, said Nishu Miglani, general manager, IT Practice, Manpower Services India.