The NASPP Blog

I was intrigued a couple of weeks ago by an article about workers in India that were threatening to go on strike. One of the demands in order to avoid the strike? Stock options. I think part of my captivation came from my own point of reference – stock options are on the decline here in the U.S., so I’m surprised to see people actually striking for them. As it turns out, stock options are still quite popular in India. Tsk tsk to me for not being more “global” in my analysis of the perceived value of stock options. My new found intrigue with India was backed up by a study conducted by Ernst & Young, which I’ll explore in more detail in today’s blog.

We Want Stock Options!

According to an article on the Financial Express, union representatives for a group of auto workers “asked that all workers of Bajaj Auto should be given the option to subscribe to equity shares at a discounted rate of R10 per share, and that each workman be allowed to purchase 500 shares.” A similar demand was made in last year during a period in which workers were on strike for 50 days. I’d say these workers are passionate about their desire for an equity stake in the company. I wondered, though, why they didn’t ask for restricted stock units. I think I got my answer when I came across the study by Ernst & Young (which is also mentioned in the latest edition of the NASPP Advisor newsletter, due out next week).

It’s All in the Perceived Value…

We’ve long observed the downward trend in stock option issuances here in the United States. While that pattern continues, a study by Ernst & Young shows that stock options (referred to as ESOPs) remain popular in India, as reported in an article at the Indian business website LiveMint.com (“Evaluating Stock Options” by P.R. Sanjai and Aveek Datta, Mar. 25). The E&Y study reports that a whopping 88% of Indian companies still prefer stock option plans (compared to only 49% of multinational corporations). There are a few reasons why the immense popularity of stock options in India – one may be found in the perceived value that these equity types carry in the technology sector. When stock options were more popular, technology companies were heavy users, and in some cases a lot of wealth was created – even in the lower ranks of organizations. With India having a strong technology sector of its own, it may be that the perception of stock options took hold back in the boom times, and hasn’t really dissipated or refocused on other equity types. Though in checking around, it seems RSUs are also gaining in popularity amongst employees in India as well, but still trail stock options (at least from a perceived value perspective).

It May Not Be One Size Fits All

We often talk about how multinational companies need to consider the factors of the locales in which they do business. Things like culture, economics, business and regulatory climate all impact a company’s compensation approach in a jurisdiction. I would add to that analysis and perceived value beliefs about equity held by the local population. While a preferred form of compensation may not be feasible in certain jurisdictions, it may be wise for us to explore the perceptions of our employees abroad in order to better understand how equity compensation affects them. Do they place more “value” on one type of equity versus another? Although India is just one country, and stock options just one form of equity, it’s clear that the dynamics behind “why” a certain type of equity compensation may be preferred in a locale can be multi-faceted and require further exploration.

-Jennifer