Employee Stock Option Plan (ESOP) has been used in organizations as an effective benefit measure and retention tool. Indian organizations, mostly in IT industry have followed the western ones in implementing ESOP. But, in the face of the global economic crisis, its potential value needs to be reviewed in the Indian context. Many organizations are withdrawing or suspending ESOP in favor of other types of benefits. This article critically addresses this issue by looking at the pros and cons and suggesting possible alternatives.

As the shocking crisis in Satyam Computer, the fourth largest software exporting company in India came into the media limelight, it was revealed that the 1.6 crore Employee Stock Option Plan (ESOP) held by the employees in the troubled organization, actually had very little value, if any. As the stock price of Satyam crashed to less than one-fourth of its previous value on a single day, it was estimated that the notional value of the loss could be as huge as Rs. 300 cr. Some analysts went to the extent of predicting that the book value of Satyam stock could be negative. This unprecedented disaster in the Indian corporate world once again raises the question on the viability of ESOP as an effective instrument for employee involvement and motivation. The article attempts to address this issue.

Before moving on, let us review the basic features of ESOP. Simply put, ESOP is one of the monetary benefits offered by a company to its employees, when it offers its shares to employees. The employees, therefore, have an option of purchasing the company's shares, fixed at a price, which is commonly lower than the market price, termed as preferential price. It is a deferred compensation plan, distinct from being just another fringe benefit offered by organizations. It should be noted that sometimes, the companies offering ESOP to employees identify a minimum tenure at the organization (e.g., at least one year) before an employee could opt for ESOP. The organization may also offer ESOP to employees above a certain hierarchical level. It is not essential that ESOP is offered only at a preferential price. An organization can offer a certain volume of its shares to employees at the existing market price as well. If the organization is not a listed company, the management can still offer ESOP to employees at a fixed price.

Global CEO Magazine, Employee Stock Option Plan, ESOP, Satyam Computer, Securities and Exchange Board of India , SEBI, Phantom Stock, Department of Public Enterprise, DPE, Fringe Benefit Tax, FBT, Infosys Technologies, Employee Capitalism, IT Sectors, Ffinancial Markets, Global Crisis.