Companies are banking on flexible stock options to attract, retain talent

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Companies are banking on flexible stock options to attract, retain talent
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Amid the Great Resignation trend seen across the globe, the huge demand for talent is prompting employers to offer lucrative incentives to employees. More and more firms are now allowing early and more frequent encashment of stock options. The shorter vesting intervals, some as short as one month, provide employees with more cash at regular intervals, unlike the previous stock options that promised long-term gains.

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Employee Stock Option Plans (ESOPs) give employees the right to buy a specified number of shares in the company at a discounted rate. Employees can encash a percentage of these shares after an agreed interval of time or vesting period. For listed companies, the mandatory vesting period is approximately one year.

Udaan, a B2B e-commerce platform, recently reduced the one-year vesting period and said all future ESOP allocations would be vested every quarter.

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“People trust companies with their careers. We felt that the practice of granting ESOPs with a one-year cliff doesn’t reciprocate this trust. As a progressive employer, we have decided to take the lead in balancing the scales in employer-employee relationships in the industry and revamped our ESOP policy. We want to treat all our employees as responsible adults and as equal partners” said Meenakshi Priyam, Group Chief Human Resources Officer (CHRO), Udaan, to The Hindu Business Line.

“In the technology sector, and primarily led by Silicon Valley companies, we have seen a trend towards vesting equity programs over shorter durations. Therefore, the typical structure would be as follows: one year after the first 25 percent grant and then every quarter, there is 1/16th of the total grant,” Anandorup Ghose, partner, Deloitte India, told Mint.

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This move by companies is driven by the shortage of talent and a direct demand for profiles with shorter vesting periods.

A specialist staffing firm Xpheno that mainly provides hiring services to IT firms has seen 30 percent of their clients reducing stock option vesting periods. Kamal Karanath, Xpheno co-founder, shared an incident with Mint where a candidate who left his senior role at an FMCG firm to join an OTT platform, moved to an e-commerce company within months as they offered him an ESOP that could be redeemed every quarter.

Teachmint, an education start-up, introduced a ‘Continuous ESOP Liquidity Plan’. The plan allows employees to sell their vested shares whenever they want and plan their finances. They do not have to wait for the company to raise money or for the investors to buy back.

Mihir Gupta, CEO, and co-founder, TeachMint, told Moneycontrol, “We are doing this so that ESOPs stop being a hypothetical number and create actual meaningful wealth which can make a difference to a team member’s life. This becomes a comparable proposition to a public company which would offer tradeable ESOPs.”

Other companies such as the Vedanta Group have introduced new norms in their stock options that align with their business. “ESOP remains a USP in our Total Rewards philosophy, but it has evolved over the past 18 years and, in its current build, it is more focused on professional performance standards with consistent individual performance that works as a multiplier to create appropriate talent. It also acts as discrimination,” said Praveen Purohit, Deputy Chief Human Resource Officer, Vedanta Group, to Live Mint.

“With an increasingly focus towards creating a sustainable organisation, elements of ESG and carbon footprint have recently been introduced as part of planning parameters,” he added.

Read Also | Flipkart creates ESOP pool of Rs 17,000 crore; highest in India: Report

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