INDIA: "New accounting norms may do away with stock options - Economic Times"

New accounting norms may do away with stock options - Economic Times

MUMBAI:
The new global accounting norm that Indian firms are migrating to next
year
could draw curtains on the era of stock options and launch an entirely
new
system of executive compensation packages.



The International
Financial Reporting Standards (IFRS), a uniform code of global
accounting norms
that Indian companies are adopting by April 2011, stipulate firms to
charge the
cost of carrying the stock options to the profit and loss account — a
marked departure from existing norms that didn’t mandate any accounting
record and hence were cost-neutral.



HR executives and consultants
that ET spoke with said that large companies across sectors have started
reviewing long-term incentives and are bringing in alternate measures
such as
restricted stock units, performance shares, higher percentage of cash
and
staggered bonus payments to replace stock options in salary
packages.



“We expect to see greater use of multiple aspects
including options, performance shares, cash-based long-term incentives
that are
targeted at different workforce segments,” says Padmaja Alaganandan,
India
business leader of Mercer Human Capital, a professional advisory firm
that
advises companies on compensation packages.



She says that the new
IFRS regulations will make the true cost of options more transparent and
this
will be another factor affecting long-term incentive strategy. The
companies
reviewing their packages include Godrej Group, Mahindra & Mahindra
and
Marico, which have taken the cue from Infosys.



Consumer goods giant
Unilever recently announced a new compensation package where senior
managers
world-wide will have the opportunity to invest as much as 60% of their
annual
cash bonus in Unilever shares a