Startup employees now prefer to receive bonus over ESOP

Posted on February 6, 2017

Rewards for employees’ hard work are those which motivate employees of every company to work better next time. Companies usually reward their employees in four different ways: they may give an award for the achievements made (this may come with a cash prize also), they may give cash bonuses for the targets achieved, they may give their company shares (Employee Stock Option Plans (ESOPs)) as a reward or they may give some gift vouchers. Among all these options, employees of startup companies today, prefer to receive cash bonuses as opposed to ESOPs as their rewards/bonuses. The reason being, many startup companies in India, which had boomed in 2015, are now steadily losing their business and their stock values are depreciating by the day. Therefore, buying stocks of their company is of no use to its employees as they cannot make any profit out of it. Read more on Startups

“We have seen a change where the ESOP component in compensation packages has dropped in start – up companies. This is because they never reach the valuations they initially project and in the past year, a lot of start – ups also had to close businesses. Since around the end of 2016, we have been witnessing a change from ESOPs to variable bonuses in terms of compensation in these companies”, Mohit Bharti, Director of the professional recruitment consultancy, Michael Page India, said.

Startups in the categories of e-commerce, food, technology, logistics and financial services are now giving cash bonuses instead of ESOPs to their employees.

Another consultancy, Global Hunt’s MD, Sunil Goel said, “Bonuses are generally short-term component, paid either yearly or quarterly, and is becoming an attractive option even if it is one – third or one – fourth of the value as compared to the ESOPs”.

Though giving cash bonuses may be beneficial from the employees’ perspective, from the Companies’ perspective, it reduces the sense of ownership of the company among its employees. Currently, only pharmaceutical, IT and banking startups are still offering ESOPs to their employees.

“However, in the current scenario, instead of ESOPs, many organizations are looking at multiple avenues to develop and retain their leaders. Some of them include business school degrees, certifications, providing a career path and purposeful development”, Team Lease Services, Senior Vice – President, Kunal Sen said.

As the proverb goes, ‘A bird in hand is worth two in the bush’. We have to agree with the employees’ perspective that giving cash bonuses is far more beneficial to them than giving ESOPs, especially since Indian startups are declining this year and since their stock evaluations are going down by the day. Buying their company’s stocks is of no use to the employees if they cannot make any profit out of it. On the contrary, rewarding employees by other means such as funding their children’s college degrees, funding their children’s certificate courses or providing a career opportunity for their children is also something employees will find beneficial. It is the responsibility of the startups to ensure that they retain their employees and continue growing. I personally believe that cash bonuses and the above mentioned means will be useful for this purpose. Read more on Startup News