IMPACT OF ESOPs ON EMPLOYEE COMMITMENT

Alka Dwivedi, PhD

Alka Dwivedi, PhD

Scope Objective of the studyTheoretical premiseResearch methodologyFindingsRecommendations & Suggested model

Alka Dwivedi, PhD

Investigative Questions

What leads to commitment among employees?

What all is expected of ESOPs by the HR practitioners?

How are ESOPs instrumental in enhancing organisational performance?

Can ESOPs, if at all, enhance Commitment among employees?

Alka Dwivedi, PhD

Objective of the Study

Studying the organisational factors inducing commitment in employees

Investigate the impact of share ownership on the commitment of employees

Alka Dwivedi, PhD

Conflicting interests ofPrincipal & Agents

Greater the agents share holding

More the alignment of interest

Share Ownership

Interests Aligned

Encourages Profit Maximizing Behavior

Greater employee effort, workplace

innovation, reduction of wastages

Self & Peer Monitoring

Higher Performance&

Higher Productivity

Reduced Monitoring Cost

Alka Dwivedi, PhD

Hypothesis

The employees participating in ESOP schemes exhibit higher levels of commitment to the values of their organisation, than those who do not own ESOPs.

Alka Dwivedi, PhD

Sampling

• Non Random

Sample Unit• Employer

s• Employee

s

Employees• ESOP

Owners• Non

Owners

Alka Dwivedi, PhD

Data CollectionPrimary DataQuestionnairesTelephonic InterviewsIndepth interviews

Secondary Data

Annual ReportsResearch Papers

Alka Dwivedi, PhD

Management’s Responses

Rewarding and retaining more important reasons

rather than

Part of compensationRetirement benefitsTax efficient compensationEmployee ownership

Alka Dwivedi, PhD

Contd.ESOPs for a selected few. Hierarchy Skill criticality PerformanceAlso considering potentialKey employees given some special treatment.

Alka Dwivedi, PhD

Contd.

Allocated 3-6 % of equity capital for ESOPs.

Vesting period from one year to five years.

Ready to change the vesting period of ESOP schemes but none feel that reducing vesting period is a good idea.

Alka Dwivedi, PhD

Contd.Problem during designing phase wasThe size of the organization

Rather than

Lack of expertiseUnderstanding and clarity on tax treatment

Shareholders’ concerns

Alka Dwivedi, PhD

Contd.During implementation Fluctuating share prices is one big hurdle Lack of understanding of working of

ESOPs was the second hurdle.

Not

Lack of awareness or interest among employees

Alka Dwivedi, PhD

Contd. All the companies have changed their

plans since its implementation.

All the companies surveyed feel that the productivity of employees have improved significantly after implementing ESOP in their organisation.

In addition to ESOPs, other benefit plans that companies are offering to employees is variable pay (performance based), placements abroad.

Alka Dwivedi, PhD

Gain from ESOPs1. Retention2. Organisational performance3. Employee productivity4. Commitment

No difference in Absenteeism

Employees’ response

Alka Dwivedi, PhD

Commitment

Job Satisfaction

Motivation

Empowerment

Job Security

Att. Towards Co-worker

Transparency

HR Practices

Career Opportunity

Alka Dwivedi, PhD

Esop owners vs non ownersCommitment – no significant

differenceJob satisfaction- differenceFeeling of job security - no

significant differenceEmpowerment - no significant

differenceCareer opportunities- no significant

differenceAttitude towards coworkers- no

significant difference

Alka Dwivedi, PhD

MERITS OF ESOPs Different merits as told by the employees

are:

• Financial security• Tax benefits• Feeling of belongingness• Commitment• Motivation

Alka Dwivedi, PhD

DEMERITS OF ESOPThe different demerits 0f ESOPs according to the

employees are:

Disparity in distribution

Speculative nature (risk associated)

Apprehensive of the impact of FBT

Does not address the loyalty issue

Alka Dwivedi, PhD

What Employees had to say?

Without ESOP component, the overall compensation package is significantly lower when compared to job opportunities available in the market.

Alka Dwivedi, PhD

Contd.

In today environment where every individual helps the organisation to grow, differentiating who gets ESOPS and when can create a feeling of uncertainty for the other lot. Further prospective people may feel a loss of not being given the ESOPs.

Alka Dwivedi, PhD

Findings No significant difference in the

commitment of ESOP owners and Non owners.

Lower job satisfaction among ESOP owners.

Employers not thinking of reducing the vesting period while employees feel that it would make ESOPs attractive.

Alka Dwivedi, PhD

Possible explanations

Alignment of Interest ???

Amount of Capital owned

Free rider problem

Perception

Alka Dwivedi, PhD

SuggestedModel

ExtrinsicModel

Intrinsic

Model

Alka Dwivedi, PhD

Share ownership

Sense of ownershipAccess to dividends

Involvement in decision making

Satisfaction with firm/ESOP/Work

Employee Commitment

Transparency

Alka Dwivedi, PhD

Footnotes

The sample is too small to derive a general conclusion.

Respondent bias

A longitudinal study may be more predictive.

Alka Dwivedi, PhD

And there is along way to go……