Equity compensation trends in India: ESOP Trends 2010 released

ESOPs have served their objective: ESOP Survey 2010

As a part of its annual initiative, ESOP Direct, India's leading company in Equity compensation space, recently completed a survey on Design and Administration trends in Equity compensation among Indian companies. 108 companies across all sectors and size participated in the survey.

The survey highlighted several interesting trends. Some of these are:

• 1. Overwhelming 93% of companies said their ESOP plans have helped them in retention.

• 2. In a near unanimous vote, 96% of companies have said that their stock based compensation plans have achieved the objectives that they had set out.

• 3. Every 3 out of 4 companies that responded use Equity Based Compensation for the purposes of Retention. More than half of these companies also said that Reward and Ownership attitude is also one of their objectives.

• 4. In the last year's survey, the trend was to cover larger number of employees in the Plan. As compared to half earlier, one fourth of the companies have changed their strategy and are now covering only a select few employees.

• 5. 64% of companies are now thinking of implementing different instruments to incentivize the employees. These newer instruments are Phantom Stocks, Restricted Stock Units (RSUs), Stock Appreciation Rights and Stock Purchase Plans.

• 6. Trends on other parameters like exercise price, vesting period, exercise period have not changed substantially. The prevailing market price continues to be the favorite price formula, vesting period ranges from 3 to 4 years and the exercise period is within 2 to 4 years from the date of vesting.

• 7. 84% of the companies grant more than 50% of the options that they are granting, to senior management. Of these 30% companies grant options to only senior management.

• 8. Amongst the changed trends, 19% (2009: 3%) of the companies are opting for performance based vesting as compared to time based vesting. It means that not only companies who had purely time based vesting, but also companies who had a combination of time and performance based vesting have moved to vesting based on performance only.

• 9. In unlisted companies, the exit alternative made available is still an initial public offering. This is being coupled with alternatives like tag/drag along. Buyback by the company is also coming up as an alternative that quite a few of the companies are using.

• 10. IFRS convergence would change the accounting methodology. 6 out of every 10 companies who will converge with IFRS are prepared for this change and have evaluated the impact of the same.

The Survey participants included companies from diverse sectors such as Banking and Finance, Software, BPO, Manufacturing, Auto, Pharma, Infrastructure and Realty, Media and Entertainment, etc. Around 11% of the respondents were start ups and remaining equally spread between SMEs and Large companies.  Listed companies formed 73% of the respondents and the rest were unlisted.

Harshu Ghate, Co founder and CEO of ESOP Direct, while releasing the Survey report said "ESOP Direct has been conducting regular surveys to assess the industry trends and practices in Equity Based Compensation in India. In the absence of any published data on the subject, we have seen keen interest among the respondent companies and companies at large to seek information on the why and how companies design stock based compensation plans and whether it has helped them in achieving their desired objectives."

The Survey covers topics such as Objectives of designing a stock based compensation plan, Design features including vesting, exercise period, etc., Types of instruments being used, Shift or change in strategy during the last few years and Corporate action adjustments.

For more details please contact:

Neelisha Jose:

Phone: +91 20 66525285:

Email: consulting@esopdirect.com

Website: www.esopdirect.com