ESOPS A TOOL FOR EMPLOYEE

RETENTION

EMPLOYEE RETENTION

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Employee retention is strategy help to reduce avoidable separation of employees. It is one of the important responsibilities of the HR department of any organization. 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. High employee turnover results in the loss of customers and business thereby affecting the financial performance of organisation. 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.

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

ESOP

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

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

CORPORATES USING ESOP FOR EMPLOYEE

RETENTION

Pepsi was one of the 1st companies to offer options to its employees across rank and file.

Old economy companies such as Walt Disney, Warner bros had been using them since 1980s

ESOP PROBLEMS

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

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BATTLING EMPLOYEE TURNOVER

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

Thus companies across the world began to devise various alternative strategies to retain their employees. It was reported that companies in Silicon Valley invested around $4 billion annually to retain 1,60,000 jobs were left unfilled. ESOP came as a handy tool for these companies. By 2000, ESOP had emerged as one of the most powerful tool for retaining employees. 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?

FOLLOWING ARE SOME OF THE ALTERNATIVES

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

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

12. Provide growth opportunities.

13. Encourage referrals and recruits from within organisation.