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Year 2000: The e-sop byte was the most effective bait wannabe and established tech preuneurs could dangle to lure techies to their fold. The dotcom boom and front-page stories of every second techie being a millionaire fuelled dreams of quick and instant riches. In corporate boardrooms, stock options were as keenly discussed and negotiated in the final rounds of the interview as the take-away salary. Some techies were prepared to forego hefty pay packets, if a couple hundred more e-sops were thrown in, a small sacrifice for the billions later.
Year 2001 began with a bang of a different kind: the thunderous burst of the dotcom bubble compounded by the US’ economy stutter and stammer about an impending slowdown, leading Allan Greenspan to comment in exphperation that the US was on the verge of talking itself into a recession. Bearish Nasdaq in no mood to heed the warning continued its downslide, impacting markets the world over. The fast evaporating and shrinking zeroes in the techie’s portfolio soon demystified the oft-chanted mantra: own it grow it, trade it.
The wild and bizarre gyrations and exigencies of the stock market, though largely responsible for the drastic shift in perception, is not the sole reason for crashing e-sop expectations. After all, stock markets are also known to rally and bounce back and the techie may not be financial wizards, but is no fool either. If the techie has devalued stocks in the final salary package and no longer jockeys hard for them, it’s on account of inherent limitations placed by companies on this dynamic equity instrument.
Ideologically, new economy companies purported e-sops as instruments of part-ownership, a desire on the part of management to build flat and lean organisations by adopting principles of fiscal egalitarianism. Most organisations, needless to say, failed to live up to these pious intentions. Visions of management and employees involved in a common pursuit, a shared desire to see the company grow were never realised in practice. By necessity, critical decision-making such as development plans, marketing strategies and sales targets, which determine share performance in the stock market, continue to be centralised. The average techie working on an phpect of a particular project, estranged from the larger macro picture and having no control over decision-making processes fails to identify with management concerns which motivates decisions, views e-sops as bait dangled to lure him to the company’s liar. Consider this: in the recent flurry of lay-offs in the US, employees of a leading New York-based daily’s web site complained they came to know of their impending dismissal through the same newspaper rather than the management. In India, where a number of software companies function as outsourcing centers, especially true of companies who have their corporate head offices in the US, the distance between management and employees is even greater. In these corporate scenarios, the average techie is clueless about reasons for certain decisions. Nagendra, a software engineer working with Purple Yogi says: "E-sops are no longer attractive. Everyone offers the shares and all companies say the same sentences at the time of joining. Employees do not have access to an independent evaluation mechanism to assess claims. Hence, one only gets the management’s picture which for obvious reasons is bound to be rosy". Such opinions clearly contradict company rhetoric of e-sops as incentive aids, intended to make employees view the company as their own.
Consequently, to a large extent, e-sops have failed to dramatically raise employees’ commitment levels because they are part shareholders and have a stake in the company. The exception to the norm is start-ups and companies in the pre-IPO stage. If the company goes public, the value of the options is bound to rise hundred fold, literally transforming paper into valued instruments. Less hierarchical than established organisations, motivation levels to make a killing are hence high in start-ups. For instance, employees who joined Aztec at the time of its inception mopped a neat fortune when the company went public. Established companies, already registered on the stock exchange, cannot offer similar benefits. Unless the company offers sops at a discounted price, the rise in share price may be marginal, leading most employees who join these set-ups as view e-sops as a joining bonus, marginally better than the medical or travel allowance.
If options no longer make employees’ dizzy, it’s also on account of a number of restrictions posed by companies on exercising these stocks. Most companies have a lock-in period of two years, i.e., the employee cannot sell shares for a two-year period. Hence, if in the two-year period a particular company’s shares peak, which the employee knows may be difficult to replicate, he or she cannot take advantage of the gain. Amit Mitra, Assistant Marketing Manager, SSI enterprises, opines: "E-sops cannot be written-off but at the end of the day e-sops have failed because they are inflexible and not very handy in the hands of the individual". Companies justify the restrictions as a pragmatic retention strategy to ensure that all employees do not download their shares in the market at the same time. From the point of view of the employees, however, the constrictions literally convert e-sops into dead instruments for that particular time frame. M Satish working with Indtelesoft says: "Basically, I feel a lock-in period is not a good idea. The market is changing and one does not know where the where the industry is heading. So e-sops fail to function as morale boosters". There are other nuances to these restrictions. For instance, an employee with two years and one day of experience in the same company can exercise options whereas an employee with 11 months and 25 days cannot.
Long-term gains touted by companies also fail to impress. If the employee leaves the company within the two-year period, the company impounds the options. In this case, e-sops function as a friendly façade of that dreaded old-economy phrase-bond period. If the employee leaves the company after a period of two years, he must exercise his or her options within a certain time frame, usually three to four months. Failure to do so renders them invalid. If market conditions are not conducive at that point of time, the sale is forced and hurried, the benefits far too small, especially if the company has a policy of seeking the original investment on shares. This compounded with a capital gains tax between 10 and 20 per cent depending on the particular company’s e-sop policy may render earnings zilch or even negative.
The growing awareness about the downside of e-sops and dimming prospects of making a killing has eroded techie’s faith. Its time that companies re-align sops image with sop reality, if they want to restore the wow factor.
(The views expressed here are those of the author. Assureconsulting.com does not necessarily endorse these
views.)
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