esops casestdy

7/31/2019 esops casestdy

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ESOPS A TOOLFOREMPLOYEERETENTION


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EMPLOYEERETENTION

Employee retention is strategy help to reduce avoidable separation of

employees. It is one of the important responsibilities of the HR department of

any organization.

Importance is given to this activity due to the fact that companies with a low

employee turnover have traditionally been found to perform better than those

with a high employee turnover. High employee turnover results in the loss of

customers and business thereby affecting the financial performance of

organisation.

Reasons that induced top performers to leave an organisation

1.

Dissatisfied with the pay and benefits2. Problems with the management

3. Lack of opportunities for personal growth

Company started adopting various retention strategies because it is easier to

retain employee than have a new one.


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DIFFERENTTYPESOFRETENTIONSTRATEGIES

Compensation

Adequate support

Career growth

Human relation strategies


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RETENTIONSTRATEGIESATVARIOUSEMPLOYEELEVELS

Employee level Retention strategy

Front line employees Better compensation and benefitsTuition reimbursementImproved training programBetter orientation program

Middle level managers Better compensation and benefitsTuition reimbursementCareful selection in hiringStock optionsAdoption of casual dress code

Senior level executives Careful selection in hiringStock optionsBetter compensation and benefitsProfit sharingRetention bonuses


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ESOP

ESOPs can be defined as contribution of the

employee pay package for investing in the stocks ofthe employer company.

It enables the employees to buy shares of companyfor which they work, at or below the market prices.

Since 1990s it became extremely popular when ITindustry was experiencing a boom.


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REASONSTHATCONTRIBUTEDTO ESOPPOPULARITY

Many IT industry startups did not have enough cashto pay handsome salaries but had potential forfuture growth.

Many IT companies were performing exceptionallywell on the stock markets with their share pricesreaching dizzy heights.


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MERITSOFESOPS

Links performance to compensation package

Helps in retaining best employees

Employees are motivated to perform even better

Inculcates a sense of ownership and responsibility

among employees

Establishes importance of team effort amongemployees


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CORPORATESUSINGESOPFOREMPLOYEERETENTION

Pepsi was one of the 1st companies to offer options

to its employees across rank and file.

Old economy companies such as Walt Disney,

Warner bros had been using them since 1980s


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ESOPPROBLEMS

ESOP were seen by many as very poor incentivestrategy for motivating employees.

Demerits of ESOP

1. Only profitable companies can use the tool.

2. Stock prices do not always reflect fundamental ofcompanies.

3. Falling share prices could mean losses for

employees.4. Inability to cash in quickly can dampen interest.

5. Lack of transparency can earn accusations offavoritism.


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BATTLINGEMPLOYEETURNOVER

As many companies are downsizing heavily, others arestruggling hard to hold on to their best employees.

As employees turnover rates increase, employeeretention is became one of the key issues for companies

and HR officials across the world.According to Accenture report, it is seen that 30% of

employees left their job in the 1st year itself.

Boom in the IT sector is a major way responsible for

increase employee turnover.As a result companies started paying exorbitant salaries

and perks to retain their existing employees. Howeverafter a certain level even increase salary could notarrest the employee turnover.


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Thus companies across the world began to devisevarious alternative strategies to retain theiremployees. It was reported that companies inSilicon Valley invested around $4 billion annually toretain 1,60,000 jobs were left unfilled.

ESOP came as a handy tool for these companies.By 2000, ESOP had emerged as one of the most

powerful tool for retaining employees.

Compensation was not major reason for highemployee turnover according to many reports thanwhy organisation opt for compensation as a major

employee retention tool rather than adopting otheralternatives?


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FOLLOWINGARESOMEOFTHEALTERNATIVESWHICHCOMPANYCANADOPTTORETAINEMPLOYEES

1. Adopt best recognition and reward system.

2. Improve communication system in organization.

3. Create an EVP (Employee Value Proposition) and

learn how to brand your EVP both internally andexternally.

4. Use Talent Development Plans to create better

ladders in company.

5. Use employee engagement programs thatenergize and engage your workforce.

6. Instill a positive culture such as honesty,excellence, attitude, respect, teamwork, etc.


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7. Mentoring program with a goal oriented feedbacksystem provides a structured mechanism for developingstrong relationship within a organization.

8. Training employees reinforces their sense of value andhave understanding of their job requirement.

9. Foster trust and confidence among employees.

10. Lower stress from overworking and create work lifebalance.

11. Make employees feel valued.

12. Provide growth opportunities.

13. Encourage referrals and recruits from withinorganisation.

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