ESOPS – A TOOL FOR EMPLOYEE

RETENTION

Importance is given to this activity due to the fact that companies with a low employee turnover have traditionally been found to perform better than those with a high employee turnover. It is one of the important responsibilities of the HR department of any organization. .  Employee retention is strategy help to reduce avoidable separation of employees.EMPLOYEE RETENTION    1. High employee turnover results in the loss of customers and business thereby affecting the financial performance of organisation. 2. Reasons that induced top performers to leave an organisation Dissatisfied with the pay and benefits Problems with the management Lack of opportunities for personal growth Company started adopting various retention strategies because it is easier to retain employee than have a new one. 3.

DIFFERENT TYPES OF RETENTION STRATEGIES Compensation  Adequate support  Career growth  Human relation strategies  .

RETENTION STRATEGIES AT VARIOUS EMPLOYEE LEVELS Employee level Front line employees Retention strategy •Better compensation and benefits •Tuition reimbursement •Improved training program •Better orientation program •Better compensation and benefits •Tuition reimbursement •Careful selection in hiring •Stock options •Adoption of casual dress code Middle level managers Senior level executives •Careful selection in hiring •Stock options •Better compensation and benefits •Profit sharing •Retention bonuses .

Since 1990s it became extremely popular when IT industry was experiencing a boom. It enables the employees to buy shares of company for which they work.   . at or below the market prices.ESOP  ESOP’s can be defined as contribution of the employee pay package for investing in the stocks of the employer company.

REASONS THAT CONTRIBUTED TO ESOP POPULARITY  Many IT industry startups did not have enough cash to pay handsome salaries but had potential for future growth. Many IT companies were performing exceptionally well on the stock markets with their share prices reaching dizzy heights.  .

MERITS OF ESOPS  Links performance to compensation package Helps in retaining best employees   Employees are motivated to perform even better Inculcates a sense of ownership and responsibility among employees Establishes importance of team effort among employees   .

 Old economy companies such as Walt Disney.CORPORATES USING ESOP FOR EMPLOYEE RETENTION  Pepsi was one of the 1st companies to offer options to its employees across rank and file. Warner bros had been using them since 1980s .

2. Demerits of ESOP Only profitable companies can use the tool. . 3. Stock prices do not always reflect fundamental of companies.ESOP PROBLEMS  ESOP were seen by many as very poor incentive strategy for motivating employees.  1. Inability to cash in quickly can dampen interest. Falling share prices could mean losses for employees. 5. 4. Lack of transparency can earn accusations of favoritism.

. As a result companies started paying exorbitant salaries and perks to retain their existing employees. others are struggling hard to hold on to their best employees. According to Accenture report.BATTLING EMPLOYEE TURNOVER      As many companies are downsizing heavily. it is seen that 30% of employees left their job in the 1st year itself. employee retention is became one of the key issues for companies and HR officials across the world. However after a certain level even increase salary could not arrest the employee turnover. As employees turnover rates increase. Boom in the IT sector is a major way responsible for increase employee turnover.

 Compensation was not major reason for high employee turnover according to many reports than why organisation opt for compensation as a major employee retention tool rather than adopting other alternatives?  . ESOP had emerged as one of the most powerful tool for retaining employees.  ESOP came as a handy tool for these companies. By 2000.000 jobs were left unfilled. It was reported that companies in Silicon Valley invested around $4 billion annually to retain 1.60.Thus companies across the world began to devise various alternative strategies to retain their employees.

3. 5. Use employee engagement programs that energize and engage your workforce. Improve communication system in organization.FOLLOWING ARE SOME OF THE ALTERNATIVES WHICH COMPANY CAN ADOPT TO RETAIN EMPLOYEES 1. etc. . Create an EVP (Employee Value Proposition) and learn how to brand your EVP both internally and externally. 2. teamwork. 6. Use ‘Talent Development Plans” to create better ladders in company. 4. excellence. respect. Adopt best recognition and reward system. Instill a positive culture such as honesty. attitude.

12.7. Lower stress from overworking and create work life balance. Encourage referrals and recruits from within organisation. . Make employees feel valued. Provide growth opportunities. 9. Mentoring program with a goal oriented feedback system provides a structured mechanism for developing strong relationship within a organization. 10. Foster trust and confidence among employees. 11. Training employees reinforces their sense of value and have understanding of their job requirement. 13. 8.