Survey on ESOP Design Practices 2001

ESOP Practices in India – An Overview

The survey report, in the following chapters, addresses the finer aspects of ESOP Design practices in India. It would however be useful to take a macro view of the overall trends that seem to be emerging in this relatively new phenomenon in India.

In the subsequent paragraphs we have made an attempt to identify and analyze the macro trends. We have tried to interpret the findings vis-à-vis sectors (IT Vs Non-IT) and also within the sectors, in terms of whether companies are looking at structures unique to their requirements or is everyone following each other. We have also tried to analyze the impact of the SEBI guidelines on ESOP and benchmarked the findings versus global trends, particularly in the US.

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Coverage of employees:

There is a noticeable difference in terms of coverage, if one compares the IT and nonIT companies. While around 43% of the IT companies have given ESOPs to more than 90% of the employees, only 17% of the Non-IT companies have done so. A related finding is that more than 75% of the Non-IT companies offer ESOPs only to the senior and middle management employees. This is a predictable trend. We believe that apart from the willingness of the management to offer ESOPs, it is also the preference of the employees, which influences the decision about coverage. While a worker employee in a manufacturing company would prefer a cash incentive to a stock option, a fresh software developer

Survey on ESOP Design Practices 2001 would go for a stock option. It has to be seen how the employees in the IT sector react to the slump in the stock prices. It is however interesting that within the IT companies, while only 23% of the large companies offer ESOPs to more than 90% of the employees, the number is as high as 60% in case of smaller companies. A significant 54%