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Higher rate of adoption for ESOPs in financial services and manufacturing & auto sector

Delhi: Employee stock option plans have been gaining popularity in India for some time now. They help inculcate a sense of ownership amongst employees and create suitable reward options, inspiring loyalty and hard work from employees. Businesses must constantly innovate and evolve their equity-linked incentive plans to motivate employees and drive growth.

To highlight the same, Grant Thornton Bharat has come out with its report on equity-linked incentives and how employee stock option plans (ESOPs) are leading the way in India. The report has in-depth research of 700 listed companies across sectors over five years. It aims to provide insights to business leaders in adopting a suitable long term incentive instrument for their critical talent.

“We are seeing heightened levels of ESOP grants at various stages of the IPO process. The industry is witnessing a change in the pattern of ESOPs and their value in retaining and attracting top talent. We have explored patterns of more than 700 companies in India and are pleased to bring the findings to you in this report.”, said Ritika Mathur, Partner, Grant Thornton Bharat.

According to the report, over 50% of the researched companies have had a long-term incentive plan in place, with technology, media & telecom and financial services companies having the highest percentages, 79% and 74%, respectively. Small-cap companies adopt equity-linked incentive plans at a much higher rate than more prominent companies in the manufacturing, automotive, and real estate and infrastructure sectors.

Over the last five years, the financial services industry has witnessed a 14% increase in the prevalence of ESOPs, leading other sectors and is closely trailed by the manufacturing and auto sector, which saw a 9% rise.

According to the report’s findings, the pricing trend for larger organisations and start-ups is granting options at face value (i.e., discount greater than 90%). These are often organisations looking to reward people for past value created or are facing a challenge in attracting/retaining talent due to competition. Large and mid-cap companies often offer options at face value to critical and senior employees. Industry trends are tending toward providing higher ESOPs at faster rates.