Soon, ESOP as variable pay for PSU staff

PSU firms will soon have to offer only Employee Stock Options (ESOPs) instead of cash as part of variable pay to staff if a proposal by the finance ministry gets Cabinet approval. The Department of Disinvestment has suggested to the Department of Public Enterprises that the Performance Related Pay (PRP) to PSU executives be in the form of ESOP so that employees can become part owners of the companies and have stake in their growth. PRP is a...
variable component of the remuneration paid to the executives of CPSEs.
“We have suggested to the DPE that PSUs may be asked to offer ESOPs to make up for the variable pay component of the staff,” an agency report quoting an official said.
Currently, the concept of giving ESOP as part of PRP is optional. A portion of the PRP can be paid in the form of ESOPs if employees opt for it. “We want more retail holding in PSUs. By giving ESOPs as variable pay package both the employee and the company benefit,” the source said.
There are some benefits of ESOPs. The employee would think he/she is part owner of the company and would want to work for the better profitability of the company.
If employees get equity in the PSU, that would help increase retail holding in the company.
In June last year, market regulator Sebi had made it mandatory for PSUs to ensure at least 25 per cent public shareholding within three years. If the ESOP plan goes through, then meeting the 25 per cent public holding limit would get easier for the DoD as the present volatility in markets has somewhat dampened the disinvestment programme of the government.