The Hindu Business Line : Retaining talent

For employees who receive RSUs, there is also an added benefit. In contrast to Employee Stock Option Plans (ESOPs), where employees pay for the shareholdings at market rate and gains depend on the movement of the stocks, in case of RSUs, there is a higher degree of protection.

Since RSUs are generally granted at face value, or a highly discounted price, even when the stock price shifts downwards, employees still stand to gain from it.

Satyam Computers, which had retracted its Employee Stock Option Plans in early 2002-03 when the market was not doing well, has reintroduced stock option plans this year. However, it has been offering Restricted Stock Units to its key employees since last month.

"We prefer this for our lead performers in the organisation. Since we have started issuing it from last month, it would be early to comment on any figures. However, we would prefer more risk-free schemes as far as junior-level employees are concerned," says S. Ratnesh, General Manager, Corporate HR, Satyam Computers.

Similarly, Wipro resumed offering RSU this year after its earlier scheme in 2004. The company continues to see it as a key strategy in bringing down attrition to about a third of the current rate.

"While RSUs also cost the company, in contrast to ESOPs, employees don't have to worry on the price going underwater. In ESOPs, if the stock price did not move higher, the employees would not gain anything," says Anil Jalali, Head Compensation and Benefits, Wipro.

iGate too offers RSU at a face value of Rs 4 per share. "With volatility in the stock market, there is always a risk element associated with ESOPs. We prefer issuing RSUs that would not only provide value that can be realised during exponential growth, but also protect our employees. We instituted RSUs in July-September quarter last year by giving our employees the choice of converting ESOPs into RSUs. The vesting period of RSUs is linked with performance," says Ramachandran, CFO, iGate Global.

Vesting period is a fixed period after which a certain percentage of stocks get converted into shares and can be sold in the market.

According to Ramachandran, iGate offers RSUs annually to its top 10 performers. He says that despite multiple choices being available to employees in terms of jobs with much higher compensation, the remuneration remains static. In contrast, RSUs offer a better possibility of wealth creation. Moreover, most MNCs do not offer stock options to Indian employees due to certain regulatory constraints.

However, companies such as Polaris Software and Cognizant Technology Solutions continue to offer ESOPs. Polaris, with an employee base of 7,000 employees, presently has 1,000 people covered under its employee stock option plan.

"Since the stock prices of major IT companies are already quoting so high, the extent to which employees would benefit from stock option plans with further price rise would be very less. This is another reason why employees would prefer cash-based incentive or RSUs. While RSUs also get expensed (in the financial statements), it will not impact the company's accounting structure to the extent to which ESOPs would," says Amitabh Singh, Partner, Global Tax Advisory Services, Ernst &Young.

priyanka@thehindu.co.in

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