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Software Esop dream turns sour

Bipin Chandran, D John Samuel Raja & K Giriprakash in New Delhi/Madras/Bangalore

The stock option dream of software professionals has suddenly turned sour. With the downslide in the stock market eroding the scrip price of many a tech company by as much as 78 per cent, several software firms are taking a second look at their Esop strategy.

Sample this: In Polaris Software Lab Ltd, the employees exercised their Esop at Rs 480 per share. At the current market price of Rs 250 (as on March 30, 2001), the share value has taken a 47 per cent plunge. In the case of NIIT, the decline has been worse. The share value, at Rs 719, has been eroded by as much as 55 per cent against the exercise price.

A survey of top IT companies reveals that the current market price of their scrip is 30 per cent to 78 per cent lower than the exercise price of their ESOP. For most IT professionals, who do not have an active stock portfolio, the hit is doubly hard. For, they will not get any tax relief if they offload their stocks at a price less than the exercise price.

The employers have no doubt taken notice of the heavy erosion in the "wealth" of their employees. Adobe Systems, for instance, has announced a fresh stock offering of about four million shares to its employees worldwide.

A leading Delhi-based software technology services firm is in the process of reworking its Esop package. The company, which issued its first round of stock options in early 1998, plans to offer fresh options to its employees and is also reworking its compensation package.

"We have decided to offer our employees fresh ESOPs as the share price has come down significantly from the level at which we offered Esops," said a senior executive of the company.

With Esops turning unattractive, many IT companies are expected to rely on cash incentives to lure and retain skilled manpower. Rakesh Kapoor, managing director of Delhi-based Summit Infotech, said software professionals did not prefer Esops as a means of compensation. However, Summit is not reworking its Esop or compensation package, at least for now.

However, India's leading IT companies Infosys Technologies (which will see its biggest vesting till date in the current year) and Wipro Ltd are not expected to effect any change in their Esop despite the US slowdown and the fall in the price of their shares.

The ESOP (employee stock option plan) Infosys granted to 105 employees in 1996 will mature after a five-year lock-in period in March 2001. The vesting of Wipro's stocks is expected to take place in June, October and November, 2001.

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