Employees are increasingly looking at wealth-creating opportunities as an integral part of their compensation and benefits (comp & ben) package for several reasons, including financial security, inflation, and the rising cost of living. Traditionally, comp & ben has primarily consisted of a fixed salary, but in today’s competitive job market and evolving workforce preferences, other forms of wealth creation are gaining importance.
Managing finances can be difficult, particularly when one is stretching a paycheck until the next one. Hence, it’s important for companies/employers to help employees with guidance on how they can create wealth. How can they do it?
“One aspect involves educating employees on the topic of wealth creation using varied approaches, rather than universally defining it solely in monetary terms,” advises Rajesh Balaji, CHRO, Matrimony.com. When examining the roles of employees, it becomes evident that wealth creation is a highly personal matter, varying from one individual to another.
The notion of wealth should not be limited to a singular definition centred around money. Hence, it (the education/awareness) needs to be tailored to the unique needs and perspectives of distinct employee segments. Citing an example, Balaji explains, “In the case of junior and mid-level employees, there needs to be an extensive educational initiative concerning wealth creation. It’s important to emphasise that wealth creation goes beyond the realm of Employee Stock Option Plans (ESOPs) and Restricted Stock Units (RSUs).”
“One aspect involves educating employees on the topic of wealth creation using varied approaches, rather than universally defining it solely in monetary terms.”
Rajesh Balaji, CHRO, Matrimony.com
Rajesh Jain, CHRO, Welspun Enterprises, suggests another way — “Some companies, particularly in the real-estate sector, offer their employees plots or apartments as a means of creating wealth. This is another avenue for wealth accumulation since tangible real-estate assets can be beneficial, although this involves cash outflows for the companies, and it’s a relatively rare practice.” However, he warns, “While this (plots or apartments as wealth creation) can be effective, its applicability is very limited, and many companies lack the willingness to adopt it.”
Satyajit Mohanty, VP-HR, Dabur India, explains how wealth creation often revolves around various mechanisms and strategies employed by companies to reward their employees financially. One of the predominant aspects that typically garners a lot of attention is the use of equity-based incentives, such as stock options and RSUs. These are tools that companies offer to their employees, often as part of their compensation packages, to provide them with a stake in the company’s success.
“ESOPs and RSUs offer the potential for significant financial gains if the company’s stock price increases, thus creating a pathway to substantial wealth. However, traditional salary and benefits packages, which typically include regular paychecks, health insurance, retirement plans and other employee benefits, often receive less attention in these discussions about wealth creation. These forms of compensation are considered more stable and predictable than equity-based incentives, but they may not offer the same potential for rapid wealth accumulation,” he asserts.
“Yet another option is Employee assistance programmes (EAPs). While not directly related to creating wealth, offering EAPs can provide employees with resources and support to manage personal finances, receive investment guidance, or access financial planning services. This can help employees make informed decisions and improve their financial well-being.”
Rajesh Jain, CHRO, Welpsun Enterprises
Companies’ wealth-creation awareness should also encompass the knowledge of investment strategies, financial management and savings. “Creating an awareness of how to invest, save and effectively manage one’s finances is a crucial aspect of wealth creation. This is particularly significant for employees at the junior and middle levels, as they may not fully comprehend the importance of the money they earn. While they acknowledge the need to save, they may lack the understanding of what to save, how to save and how much to save,” believes Balaji.
Yet another option is Employee assistance programmes (EAPs). “While not directly related to creating wealth, offering EAPs can provide employees with resources and support to manage personal finances, receive investment guidance, or access financial planning services. This can help employees make informed decisions and improve their financial well-being,” points out Jain.
Refraining from excessive spending on medical expenses can also be considered a form of wealth creation. Therefore, in Balaji’s opinion,“Maintaining health is another crucial aspect of wealth creation. Hence, organisations should also implement various programmes related to insurance, medical care and overall health for their employees,” opines Balaji. One’s lifestyle habits, including good dietary choices, exercise routines and overall well-being, contribute to their financial health as well. Nowadays, instead of instructing people to completely abstain from certain habits, companies need to encourage moderation and a balanced approach to life.
Furthermore, another option involves Employee Provident Fund or EPF, the National Pension System (NPS) and Public Provident Fund (PPF). These remain good choices for employees to build substantial portion wealth, despite some limitations due to government policies. “Educating employees to compulsorily contribute throughout their career, particularly to support their retirement planning, is the differentiator,” believes Jain.
“ESOPs and RSUs offer the potential for significant financial gains if the company’s stock price increases, thus creating a pathway to substantial wealth. However, traditional salary and benefits packages, which typically include regular paychecks, health insurance, retirement plans and other employee benefits, often receive less attention in these discussions about wealth creation. These forms of compensation are considered more stable and predictable than equity-based incentives, but they may not offer the same potential for rapid wealth accumulation.”
Satyajit Mohanty, VP-HR, Dabur India
It is good to remember that ESOPs, stock options, or RSUs are merely tools for wealth creation. Merely offering these tools will not help. It is all about how effectively the companies are utilising them.
Jain points out, “Unlisted companies often distribute equity in startups, and one primary means of wealth creation in this context is early-stage ESOPs. These enable employees to accumulate wealth while they work for these companies. When these firms eventually go public, employees can access their allocated ESOPs, but this doesn’t always happen, especially if the share price performs exceptionally well. Consequently, only a fraction of companies, typically around 10 out of 100, manage to generate wealth for their employees through this method. Therefore, benefitting from this opportunity largely depends on luck.”
When companies offer multiple avenues for wealth creation, such as stock options in addition to regular salaries, it can become challenging, especially when it comes to attracting new talent. “In situations where stock options don’t yield the expected returns or the initial allure of these programmes diminishes, it can affect the overall employment proposition for the company,” cautions Mohanty. Highlighting such a stock scheme, he explains, “In the past, a company had an employee stock scheme that was initially successful but lost its significance over time. To address this, the company then had to introduce a parallel cash-incentive programme to offset the fading appeal of stock options.”
Companies need a nuanced approach to compensation, recognising that not all employees may view stock options as a compelling or accessible wealth creation tool. In industries where stock options are less common, companies may need to consider a more diversified and balanced compensation strategy that takes into account the preferences and expectations of potential employees. Such industries, where employees often struggle to fully comprehend the benefits of stock options, may be generally sceptical about ESOPs. This scepticism tends to be more pronounced when employees have no prior experience or track record of benefiting from such programmes.
Therefore, “When companies grant stock options, they must effectively communicate and educate employees about them. Similarly, It’s essential for employees to adopt a longer-term perspective, viewing the stocks as a kind of long-term savings account,” enunciates Mohanty.
“Employers can also offer performance-based bonuses or profit-sharing programmes, where a portion of the company’s profits is distributed to employees based on their contribution or performance. This provides an additional source of income and incentivises employees to work towards the company’s success. This is practised in smaller companies and for very few employees,” concludes Jain.