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Written by 2:30 am Manufacturing Processes

India Inc doles out benefits to retain mid management

Employee stock ownership plans (ESOPs), for instance, have conventionally been the preserve of senior management and CXOs. But companies are now using it as a tool to attract junior to mid-level people to ensure they stay around longer.

“In the IT, e-commerce, and product sectors, companies have integrated deep-discounted ESOPs as a core element of their rewards philosophy,” said Jang Bahadur Singh, associate partner of human capital solutions at consulting firm Aon in India. Singh noted that traditionally, sectors such as financial services, FMCG (fast-moving consumer goods), and FMCD (fast-moving consumer durables) have offered equity programs to top and middle management.

Ironically, although the job market is muted, holding on to key talent remains a challenge.

The incentive programs are now trickling down the hierarchy as the battle for niche talent intensifies. “As these industries begin to recruit talent from technology-focused organizations, they are now expanding their equity offerings to include junior-level employees as well to mirror the reward structures of these technology organizations,” Singh said.

Going ahead, he expects group incentives and flexible work arrangements, which are routine in tech companies, to permeate other industries, too.

Also read | Mint Explainer: The budget, buybacks, and Esop taxation

Ironically, although the job market is muted, holding on to key talent remains a challenge. Attrition levels in IT, banking, startup, and consumer sectors have fallen in the past year or so, but top talent remains a vulnerable spot for companies. The middle management are more prone to leave if the right compensation, stocks or career growth path are not given, making succession planning difficult for firms.

Who’s giving the incentives

In the banking sector, for example, Axis Bank and Yes Bank have brought in stock units for their high performers in the middle management.

“Over the last year and a half, we have rolled out employee stock units for the high performers in middle management. They help us in both retaining and aligning the executive to the company’s goals,” said Rajkamal Vempati, president, human resources at Axis Bank.

Meanwhile, Mint has learnt that Yes Bank is implementing selective RSUs for mid-level employees this year as a strategic retention measure for key talent. The bank did not respond to Mint’s queries.

RSUs refer to restricted stock units, where a certain number of shares is given to an employee after she completes a certain tenure in the company.

Apart from RSUs, companies are also dishing out plain vanilla ESOPs and performance shares.

Under ESOPs, employees can buy stock of the firm at a predetermined price after a certain number of years. In performance stocks, the shares are allotted only if the employee meets the goals, stays with the company for a specific tenure and the firm also meets its growth target in the sector.

Also read | Care throws a challenge—and an apology—to insurance regulator on Saluja’s Esops

This phenomenon is not restricted to the financial services industry, where attrition rates are relatively higher. Several leading companies in industrial segments, too, have put in place measures to keep their flock happy.

A Japanese tyre major has expanded the number of employees eligible for its long-term incentive plan in India. A senior executive in the company said on condition of anonymity that the firm has long-term incentives that stretch over a three-year period for high performers. “That number has increased by 2x in the last five years,” the executive said. “The long-term grants are given to those who fit the bill of critical talent and whose roles are crucial and who do not have a successor in place.”

Similarly, at spirits major Pernod Ricard, employees are offered an opportunity to apply internally for mid- and senior-management roles within India and beyond.

Mint has learnt that Yes Bank is implementing selective RSUs for mid-level employees this year as a strategic retention measure for key talent.

“During the negotiation process, candidates can discuss options for cash or stock, but these are only part of the equation and have limited efficacy when it comes to fostering long-term engagement,” said Nitu Bhushan, chief human resources officer at Pernod Ricard South Asia.

“Besides, we continuously explore roles and opportunities with our global teams to ensure that talent from India gains valuable global exposure,” Bhushan added. “These conversations are ongoing, even when specific roles have not yet opened, allowing us to identify potential positions well in advance.”

For early-stage to growth-stage tech-focused startups, the formative days of the firm are most critical and a large part of the funding they raise goes towards building out teams. In most cases, the companies offer stock options to the top management to buy into the founder’s vision.

However, they are now increasingly including junior and mid-level employees in the Esop pool. The need to prevent the middle and junior order from heading to competition also comes at a time when consumer, logistics, e-commerce, and retail will see average bonuses rolled out on back of muted sales during the festive season, experts pointed out.

Also read | How Religare chief got Care Esops after Irdai’s NO

“Over the near future, we are planning to offer follow-on grants to our best performing employees with the view of retaining talent. These would include employees in the junior to mid-level too,” said Sachin Santhosh, cofounder of Scimplify, a specialty chemicals contract-manufacturing startup that raised $9.5 million from investors led by Omnivore in this August.

According to Santhosh, the company will explore liquidity for employees with stock options in subsequent funding rounds. The 3one4 Capital-backed company will look at raising a new funding round over the next 12-18 months.

For scaled startups that have achieved profitability, steadying the ship for the next level of growth becomes critical and ensuring the talent stays with it is equally important, new-age founders say.

Bengaluru-based mattress and home solutions startup Wakefit, which offers stocks across hierarchies, says it is a disservice to its potential if Esops are seen merely as a retention tool. “Esops for us is to build true ownership and loyalty with the company’s mission. We provide Esops to junior and mid-level team members, too. There are target-based and tenure-based top-ups to the Esop pool, which has resulted in our mid and senior management teams staying for good tenures,” said Chaitanya Ramalinegowda, co-founder of Wakefit.co.

 

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