With a number of start-ups collapsing mid-way, many employees are now preferring bonuses instead of Employee Stock Option Plans (ESOPs) as part of their compensation package, industry experts said.

“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 professional recruitment consultancy Michael Page India, told PTI here.

This trend is seen across the start-up industry, including e-commerce, food, technology, logistics and financial services, Bharti added.

Echoing a similar view, GlobalHunt Managing Director Sunil Goel said, with many start-ups collapsing gradually, employees started relying on cash component.

“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,” he pointed out. But, Goel said, start-ups are now at a consolidation phase with lot of buyouts, mergers and acquisitions, so ESOPs might be more beneficial in the long run.

Alternative options

TeamLease Services Senior Vice-President Kunal Sen opined that this has been the trend in the last 1-2 years with declining valuations of e-commerce and tech start-up performance.

He said ESOPs will form a lower component in the compensation of top talent going forward, as earlier top talent would agree to a 30-50 per cent salary cut and opt for ESOPs, but not these days.

“Companies are offering a bonus in lieu of ESOPs. But bonus option cannot replace ESOPs as they bring in an element of ownership, which cannot be created by bonuses,” he added.

DDI India Member, Key Leadership Team, Amogh Deshmukh, said industries like pharmaceuticals, banking and IT companies are the few who offered ESOPs to employees.

“However, in the current scenario, instead of ESOPs, many organisations 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,” he added.

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