INFOSYS' RETHINK.

Anjali Prayag

Bangalore, Feb. 5

It was seen as the most brilliant HR initiative in Indian corporate history; stuff that made all other compensation practices look minimal.

ESOP, which was the harbinger of good times in the 1990s, doesn't enthuse Infosys anymore, the company that made millionaires out of its employees.

“Stock options killed the incentive to work. People with whom we shared unparalleled wealth have left us and that we believe is not healthy,” says Ms Nandita Gurjar, Senior Vice-President and Group Head, HR, Infosys Technologies. Instead, the IT bellwether has now replaced them with bonuses linked with tenure and performance. Infosys, which currently has around 110,000 employees, has brought in long-term bonuses (about 20-40 per cent of their salaries), which employees realise at the end of two-three years. This is based on tenure and performance.

The defining part of Infy's ESOP exercise was sharing wealth with people who helped create it, but somewhere it should have been tied into contribution, feels Ms Gurjar.

“For instance, instead of giving it at zero price, if we ask them to make it (stock price) to whatever price, and tell them that the difference is what they will get paid, then it makes sense,” she explains.

Infosys announced three tranches of stock option plans in the 1990s and by 2001, had turned thousands of its employees into millionaires. Some of the shares were issued at Rs 50 each and when encashed were quoting at Rs 4,000.

After that, the company has never felt excited enough to come out with something that makes it easy for people to earn large amounts of money. In fact, the company is in two minds about its much-emulated people practice, she points out.

That the ESOP sheen has faded is obvious. Wipro employees last year had to rush to banks to avail themselves of loans to buy their options to avoid the fringe benefit tax. Though the company agreed to absorb the interest cost for the tenure of the loan, which was for two years, the interest cost was treated as a perquisite and the employees were taxed separately for the cost, which left employees unhappy.

But, on an optimistic note, a principal consultant at a leading HR consulting firm, says, “ESOP may be seen as passé today, but look at what it did to industry. It was not just IT, but several non-IT companies started thinking of innovative HR practices.”

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(This article was published in the Business Line print edition dated February 6, 2010)
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