Esop in India

control over the company. Also, as we discussed in the cash option, share price will

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

7. Option compensation will continue to be a critical component of compensation for executives as it simplistically aligns the executives’ pay to shareholder value in its simplest sense. I don’t believe that options compensation is the primary driver of behavior when things shift from the legal to the illegal. As with most senior executives in industry, ego is a huge driver in individual behavior. Compensation is important, but the recognition of your performance is sometimes even more important. We have created a performance driven culture without the necessary control framework for people to operate within. One minute you are doing a great job, the next you have crossed an imaginary line. The frameworks don’t do enough to quantify behavior as legal and illegal leaving inconsistent rules for organizations to operate within. How does Enron compare to the subprime mortgage debacle, or to Steve Jobs backdating options. There remains too much room for interpretation.

Employees would be given successive stock options to promote their care for the company without feeling as though they are being forced to stay with the organization. This set up of granting stock options would also help to encourage performance of employees to lead to both the short and long term success of the firm.

Employers require an investment from their employees and in return employees need a similar investment from their company.

Obviously the high salary attracts numerous outstanding talents to join the company. The direct impact is to highly irritate the employees’ motivation. Besides, the employee stock ownership system has fundamentally changed the relationship between employers and employees from the simple employment relationship to collaboration. The change enhances the belonging of employees to the company and ensures the excellent communication, which helps employees understand how they can support the employers.

The second compensation package was not well designed nor did it help define what the corporate strategy would be. For a second time the compensation package focused on maximizing shareholder’s wealth and didn’t take into consideration the stakeholder’s position at all. Dunlap’s package was deeply weighted in company options ($3.75M). In fact it was weighted heavier than before. The stock grants were

b) ESOP’s: Incentives that allow the employees to buy the share of the firm they are working at lower rates which creates the sense of ownership.

Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 “at-the-money” employee share options on January 1, 2006. The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21.

Most important, the employees can earn stock, which gives them voice within the company to make pertinent decisions.

For each share purchased with the employee’s own funds, a French bank would lend them funds to purchase nine additional shares (up to 500 shares total). Employees would then place all ten shares in the bank’s custody as collateral for the loan. Employees would be prohibited from selling the shares for 4.5 years except under unusual circumstances. The loan could be repaid at the end of 4.5 years either from the employee’s pocket or through sale of the shares. BT would guarantee employees a minimum of 1.25 times the money employees put up to purchase the shares. In exchange for this guarantee, BT would take 1/3 of any price appreciation at the end of 4.5 years over the public offer price of 150Ffr per share. In terms of financial contracts this would be a combination of options (employees’ option to sell stock after 4.5years) and futures (BT’s obligation to pay 1.25 times employees’ personal contribution). This alternative seems to be fair for employees in the case of price depreciation, because they will have a secure profit. If shares appreciate, they will earn 33.7% of return per share less than in A1, but will also earn it on a higher amount of shares. Therefore, it is important which effect prevails. Moreover, with BT’s proposal employees lose share ownership, unless they decide to pay with their own resources.

Employee Share Ownership Plans (ESOPs) emerged in the US in the 1950s (Pendleton et al. 1995). There are about 6.5 million employees participating in ESOPs in the US, which is equivalent to 6.4 percent of the private sector workforce (Kruse and Blasi, 1998). The impact of ESOPs in the US on corporate performance has been extensively researched. The findings of 11 studies on the performance of US ESOPs are reviewed by Kruse and Blasi (1997). These studies include cross-sectional comparisons of ESOP and non-ESOP companies, before and after comparisons and comparisons of post-adoption growth. The studies generally find evidence of a positive association between the ESOP membership and performance as measured in terms of productivity or profitability, although for the most part the results were not statistically significant. However, Kruse and Blasi undertook a ‘meta-analysis’ of the results; this is a technique for examining the statistical significance of the combined results from several studies on a particular issue. The findings of the meta-analysis provided support for a statistically significant relationship between ESOP membership and performance, even if for the most part the individual studies did not find a significant relationship.

We believe the new incentive system was needed and reasonable because the accounting-based incentive system, where EPS was a measure of performance, raised valid concerns. The first being an agency problem. This existed within the old system as manager’s interests were not aligned with those of stockholders. EPS had improved steadily at a rate of 9% annually; however, the share price had increased only slightly in comparison. Therefore, the company’s stockholders had hardly benefited. The second issue was the use of subjectivity in granting bonus awards. These awards were given out even when their entity had not performed well. Managers began “politicking”, meaning they would try and convince their evaluators they performed better than the results had shown.

Employees are encouraged to share with each other on the lessons learned from project and events through debriefing sessions.Company also reward employees through several different variable-pay programs. Employees have these stock as part of their benefit. This helps to retain employees and motivate employees to work harder. Moreover, company also provides educational forums so that staff can discuss and learn about different topics that interest them.

Infosys provides strong property rights to its employees by providing employee stock option plans. Top management were given profit sharing plans based on the company performance as an incentives. ESOP’s usually guarantee long term employment. But later Infosys withdrew the stock options plan due to various complexities and accounting challenges.