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Blowing our Trumpet – Part III

Business Standard, February 21, 2012
“You would have to keep track of the company regularly and make decisions accordingly. For instance, say the promoters are pledging shares or cashing out, should you then stay invested in the stock?”

The Economic Times, May 2, 2011
“A growing number of unlisted companies today are offering stock options to their employees. The reasons are many and quite compelling. Stock options have become a very important element of the compensation packages of senior management. An attractive stock option package is almost a requirement today if you want to attract the right kind of talent who have the capability to take your company to the next level. Not only that, even promoters are becoming more progressive and the message they send out to their people is if you can create wealth, we will be very happy to share it with you.

For employees, apart from an opportunity to create wealth for themselves, ESOPs can also sometimes create a sense of entrepreneurship where they feel they are now a part of creating something they can at least call partly their own, a feeling generally missing when they work for very large organisations.”

Business Standard, October 27, 2010
“Every employer provides two-three years on average for an employee to exercise the Esop at a pre-determined price. This is the best part: there is no downward risk in Esops. If the employee feels the price is not right, it’s better not to exercise the option.”

The Economic Times, September 27, 2010
“With the stock market on the rise, many companies’ Esops that were looking not so attractive a few months ago have become quite lucrative now. This is the right time for Esop Holders to encash value and many people have done that.

Many promoters including those of well-established companies, understand that times and people’s expectations have changed. Senior people now want to ‘partner in growth’ and not ‘work for you’. Esops give a sense of working for one’s own wealth, which automatically means enhanced wealth creation for investors. So, it is a win-win situation.”

The Economic Times, April 5, 2010
“The way cashless can work here is that the employee takes a short-term loan, exercises the options, sells the shares in the market and repay the loan. Instead of taking a loan for the entire set of exercisable options, (s)he can take a loan for a lesser number of options, exercise them, sell them in the market and use this sale proceeds to exercise the balance options.

The risk to the employee is the possibility of the price falling in the market after the exercise of options and before the sale. But since these two activities are generally simultaneous, the risk is minimal.”

The Economic Times, February 23, 2010
“There is no rule for pricing of an ESOP. However, if it is priced at a discount to the market price, then there are accounting implications and the company has to write it down as expenditure in the P&L Account.”

The Economic Times, January 4, 2010
“Over the past few years, stock options have become a very significant portion of a top executive’s compensation. In certain cases, it may even go upto two to three times his annual cost to company.

This is quite logical since people at the top are in a position to take strategic decisions, so their compensation should be significantly linked to the overall value creation.”

The Economic Times, September 15, 2009
“Today, the level of confidence amongst employees that their ESOPs will be profitable is very high.

Unlisted companies have once again started looking at granting options since a lot of them are coming out of an uncertain scenario.”

The Economic Times, April 1, 2009
“In most instances, ESOPs are granted in addition to the existing market determined cash compensation, coupled with a sink-or-swim-together philosophy. The message here is – if markets do well, we all make money. If they don’t do well, ESOP holders lose the potential profit, while the investors actually lose their real wealth.

Therefore, in certain circumstances, repricing may not necessarily go down well with the shareholders. They may take a view that ESOPs should make money only if the other shareholders have also created wealth for themselves.

They can use it as a corrective mechanism at times. However, if repricing is done during regular market swings, it may also send out a your-esop-profits-are-guaranteed kind of a signal.”

The Economic Times, September 9, 2008
“Sometimes, repricing may be required if the management feels that the options were granted at a time when the valuation was unrealistically high, in which case it is more of a correction exercise.

If done during usual market dips, it may signal insecurity and lack of confidence in the future growth trajectory on the part of the management, which can send out wrong signals to their people.

It can also create wrong future expectations in the minds of the employees that the company will continue to do so whenever the prices are not favourable. This defeats the very purpose of a stock option, which is intended to reward only if the market valuations are rewarding, and is not generally meant to be guaranteed profit.”

The Economic Times, July 14, 2008
“For a company that is confident of its growth but is going through a depressed stock price due to a market downturn, a low market presents a fantastic opportunity to grant Esops at an attractive price to the employees.”

The Economic Times, March 10, 2008
“Mind boggling increments may have become the norm in the industry, but aren’t sustainable in the long run. But at the same time, the compensation package should not be ESOP-heavy at the cost of fixed compensation.

Today many VCs insist on an ESOP clause before investing in a fledgling venture, and this adds to the confidence of the investor in the entrepreneur’s commitment and ability.”

Business Today, November 4, 2007
“India, Inc. has begun to experiment with performance-linked plans”

Times Ascent, October 2007
“Owners are willing to share value creation with their people. They acknowledge the fact that value will be created by their people and if you distribute, say, 5% equity among these people, you link their personal wealth directly to the company wealth. While they increase the value of their 5%, they also simultaneously increase the value of the remaining 95%, thus creating shareholder wealth. It becomes a win-win situation for both parties.”

Outlook Money, May 31, 2006
“The current rise of ESOPs is not a superficial knee-jerk reaction. Promoters believe that a company’s value is created by employees and should therefore be shared with them.”

The Economic Times, December 16, 2006
“Stipulating a minimum number of years of service before one becomes eligible for stock options may not be good in sunrise sectors. This is because the industry itself might be young and those joining may feel they can drive the growth at an early stage so that they are a part of the wealth creation process.”

The Economic Times, May 11, 2006
“At times, discounted stock grants are used to compensate executives for underwater stock options which were offered at the ruling market price at the time of grant.”

The Economic Times, April 8, 2006
“ESOPs are being recognized as an integral part of senior executive compensation in the industry. It is increasingly becoming a component of compensation which is negotiated by executives, particularly senior people, during the hiring stage. Conventional companies may find themselves to be at a tremendous disadvantage when it comes to hiring the best talent, if they do not offer stock options as a part of their compensation.”

Interview with Times Ascent, April 12, 2006
“Have you ever heard of kids changing their parents because they get better perks from a neighbour’s dad? Apart from monetary benefits, there is a strong need to create a true relationship with the people, where they feel respected. When the going is good, stock prices are booming and option holders are making money, can you say for sure that people stayed because of the organization culture? The truth emerges when the business is going through a temporary bad patch.”

The Economic Times, October 20, 2005
“In an unlisted scenario, an extremely important, but at times ignored, factor is communication of value to the employees on a continuous basis. If we want them to feel like owners, they should know where the company is heading and should understand the value being created, which in a listed scenario is visible by looking at the stock price.”

The Economic Times, October 20, 2005
“The exit route for an unlisted company can either be an IPO, strategic sale or a buy back by the company/existing investors. Since in India stock options are almost always granted in addition to the existing cash compensation, most companies do not offer a buy-back guarantee to the employees.

Generally a company targets listing on achievement of a certain amount of growth. Only if that target is achieved, everyone including existing investors get an opportunity to exit, otherwise not. If the company is unable to go public because, say, the growth did not materialise as expected, then it can be devastating if it has to shell out cash to buy shares back from the employees.”

The Economic Times, May 21, 2005
“The instrument has entered a maturity phase, and companies have realized its long-term implications”