Employee stock options (ESOPs’), the incentive offered by companies seeking to retain talent, seem to have lost their sheen because of the volatility in share prices and the rising cost of borrowings. An increasing number of ESOPs’ granted by managements to employees have lapsed this year as compared to last fiscal year. This trend is prevalent across industries such as IT industry, banking industry, infrastructure industry etc. Other influencing factors are increased tax liability with the introduction of the fringe benefits tax and the rising cost of personal loans that many employees take to buy shares.
According to analysts, ESOPs’ have become less attractive for employees due to narrowing margins between the exercise price of stock options, or the price at which an employee has to buy the shares from the company, and the market price of the shares. Another reason is that the employee, most of the times, are not able to exercise their ESOPs’ due to the ESOPs’ being 'underwater', or the ruling market price is lower than the exercise price, they might also hold on to the shares expecting a price appreciation, and the Esops might lapse before they can be exercised, or the employee might leave the company before that. Keeping these trends in mind companies are now looking at switching to other forms of rewarding employees and reducing their dependence on ESOPs’.