Esop culture making India Inc top execs richer

Top executives and senior managers at some of India's largest companies by market value saw their wealth surge more than ₹10,300 crore (as on August 30), as their employee stock options (Esop) allocations in the past two years fared exceedingly well on the bourses. Data of Esop issuances-put together by Esop Direct-by 12 sector frontliners in the Nifty 50 showed that about 90 million options were issued over FY23 and FY24. Companies using this talent-rewarding tool include L&T, Infosys, ICICI Bank, JSW Steel, Bharti Airtel, ITC, UltraTech Cement, Bajaj Auto, Reliance Industries, UPL, Asian Paints, and Dr Reddy's Laboratories.

Officials and board members said these long-term incentives such as Esops were increasingly used by large Indian companies as a major tool to reward and retain top talent in the years where poaching was becoming rampant.

"The data shows an increasing trend among listed Indian traditional sector companies to use Esops to reward and retain top talent by aligning their wealth creation with that of the company's growth," said Jalaj Sinha, head, business development, Esop Direct (a Qapita Group Company).


"Top CEOs, CXOs, and other senior executives Esop wealth value has increased in recent years due to the growth of the capital markets, increased performance and growing use of RSUs and discounted options," said Sinha.

It's not clear how much of the Esops were encashed.

The data estimates the wealth creation of Esop grants in FY23 and FY24 in the aforementioned companies is in the range of ₹26 crore-₹3,254 crore.

Milind Sarwate, independent director & chairman of the audit committee at Asian Paints and several other top Indian companies, said: "Top talent is increasingly becoming fungible across industry sectors and many senior professionals are being poached not just within the industry but from outside. Companies need to reward and retain top talent and Esop is an easy way to do so by making the senior pros direct stakeholders in the company's growth."

That apart, the returns from the capital markets have been fabulous in the post Covid years with the equities scaling new highs. "People have made a lot of money on the Esops. "There is a temptation to let the market reward performance," said Sarwate.

Shailesh Haribhakti, chairman of audit and accounting firm Haribhakti & Co and an independent director at several Indian companies, said: "Every meritorious young executive and leader is focussing on wealth creation while also having a steady cash flow to maintain a lifestyle. Stock-linked wealth creation opportunities like Esops have become a great tool for companies to attract top talent."

Officials said that the greater acceptance of Esop among traditional sector and promoter led companies is triggered by success stories of new-age companies and startups.

The last 2-3 years have also seen many top companies reconfigure the salary packages of senior professionals with greater weightage being put on long-term stock linked incentives.

"Last 18 months, a lot of core sector companies in the industrial and manufacturing space have veered their compensation plan for senior executives to long-term wealth creation like Esops. Companies understand if they have to attract and retain talent at the top they have to give stocks. Otherwise the cost of acquisition of new talent from outside (if they lose talent) becomes double or triple," said Navnit Singh, regional managing director of India for Korn Ferry.

Board members and company officials also said the gap between the top brass compensation vis-a-vis the payouts to the broader staff is increasing across industry sectors and companies can't pay it all out of their P&L and stock-linked tools serve as a great mode.