ESOP the most popular incentive plan amongst employees: Report

An EY survey revealed that share-based incentive plans are preferred over others across industries.


A recent survey by Ernst & Young (EY)— the multinational professional services company — called ‘Share-Based Incentive Plan Report’, reveals that employees prefer Employee Stock Option Plan (ESOP) to any other share-based incentive plan.

About 71 per cent of the organisations surveyed have implemented ESOP and 94 per cent have a share-based incentive plan in place, and 87 per cent have a positive feedback on the implemented plans.

Share-based incentive plans are clearly popular in the technology (19%), financial services (19%) and diversified manufacturing (16%) industries. While ESOP ranks first, the other commonly-offered variants of share-based incentive plans, such as Stock Appreciation Rights Plan (SAR) come in second. About 13 per cent of the organisations surveyed offer SAR, as most of them are rich.

Almost 50 per cent of the companies are of the opinion that share-based incentives have helped to retain employees and also increase productivity and performance.

More than 92 per cent companies offer such incentive plans to reward and retain employees. Therefore, they only offer it to select employees. The size of the grant, however, is decided on the basis of the employee’s grade and performance.

According to the report, fresh issue of shares is most preferred as source of benefit, and 87 per cent of them issued fresh shares. The market price is preferred as the exercise price, and 52 per cent of the respondents offer shares to employees at market price of share as on the date they are granted. Seventy-seven per cent organisations do not impose a lock-in period after allotting the shares, while 78 per cent prefer sale over stock exchange as an exit strategy.

About 53 per cent of multinational companies and 45 per cent of Indian organisations allocate up to about three per cent of their paid up share capital to share-based incentive plans.

As per EY, organisations should spend quality time on deciding the plan taking into account the objectives, market trends, regulatory requirements, current and future business projections within the overall employee reward and retention framework. The plan should also be reviewed regularly to make sure that it remains attractive for employees and also fulfills the company’s objectives.

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