Indian companies do not concentrate enough on ESOP administration, reveals survey

More than 67 percent of the Indian companies have stock option plans that are more than three years old, thereby revealing that they have been exposed to almost all issues in Employee Stock Option Plan (ESOP) administration. Yet more than 83 percent of the companies do not have a dedicated administrator to handle ESOP administration. Companies end up spending less than five person days per month on this function. A survey conducted by Pune-based Esopdirect on `Employee Administration Practices 2002' revealed that companies do not concentrate enough on this function.

Significant budgets are earmarked by companies world over for administration and communication of Stock Option plans to the employees. Companies are now making conscious efforts to plan employee friendly implementation. In order to make the function more responsive and focused, alternatives like use of software, outsourcing, use of Intranet/Internet are being widely evaluated and implemented. 

The survey conducted by Esopdirect was intended to find out which Indian companies were addressing this issue and if they gave enough importance to this function. The survey covered 29 companies of which 60 percent belonged to the IT sector.

The survey revealed that the HR function is primarily responsible for ESOP administration in more than one-third of the companies. This trend is stronger in the IT segment (47 percent). The survey pointed out that Indian companies need to look at the communication issue seriously. Just as the employees tend to do, companies cannot ignore the Stock Option plans when they are not attractive or are underwater. More than two-thirds of the companies use Intranets as one of the modes of communicating with employees. Use of Internet is popular for addressing queries (35 percent) rather than for communicating grants (15 percent) or exercise (19 percent). Paper is the preferred mode for communicating grant (30 percent).

However, it is seen that most companies are discretionary when it comes to frequency for reporting to employees. Around 25 percent of the companies send ESOP reports to employees only once a year and almost half the companies give reports on a need to /as required basis.

More than 52 percent of the companies surveyed do not distribute any material other than the statutorily required documents such as scheme document or grant letters. The survey revealed that 69 percent of the companies do not provide for any training/seminars on their ESOPs. Both the indicators show that companies are not giving due attention to educate the employees on the company's ESOPs as well the concept of stock options in general.

Around one-third of the companies surveyed do not generate any management reports on ESOPs Interestingly, 11 percent of the companies allow electronic signature as a confirmation on the grant agreement. More than 46 percent of the companies have a Trust to administer ESOPs. This trend is more prevalent in the IT segment (53 percent) rather than the non-IT companies (36 percent).

According to the survey, 33 percent companies allow exercise of shares once in a year. This would imply that that they have a very short exercise window that is open only once on investing. The employees, who would want to exercise at their will, barring the black out periods, could view this as a constraint.

Only 11 percent of the companies allow fortnightly exercise. This could be due to the hassles of listing shares. However, more than 50 percent of the companies have considered outsourcing the ESOP administration process whereas only 14 percent have actually outsourced this function. Companies are looking for domain knowledge of vendors, confidentiality of data and effectiveness of the service provider.

ESOP Direct is part of the K & P group offering fully integrated on-line stock plan management services including plan administration, compliance, employee communication and online transaction capabilities.

Nanda Kasabe


CNS