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Drumbeat: Ad Buzzaar
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Friday, June 26, 1998
An extended option
The employees stock option plan for Indian software companies linked with ADR/GDR offerings seems only to be an extension of the already existing scheme. This raises the question whether the new scheme was at all necessary in the first place? Presently, a rupee denominated option with a nominal exercise price is in place wherein the employee can exercise the option after a lock-in period of say three to five years. For example, an employee in Infosys who would have entered the scheme way back in 1992-93 at an exercise price of Rs 100 would make a killing at current market prices. The answer lies in the fact that manpower construes the main asset in the industry. In a service-based industry high employee turnover seems to be a major hurdle. Cheap Indian manpower seems to be a driving force in attracting software talent abroad. Companies like Compaq and Dell having 100 per cent subsidiaries in India are major poachers of talent. In a scenario where dollar denominated salaries are the order of the day, the newmove to some extent would at least be instrumental in Indian firms retaining some of the bright software professionals. Sceptics might argue that a profit sharing arrangement would be a simpler way of dealing with the issue. Also such professionals have been allowed to repatriate $50,000 in a block of 5 years. But the moot point in favour of stock options is that if the employee leaves the organisation within the lock-in period there would not be any outflow on this account. The rupee is dipping and the software industry is growing at a whopping CAGR of 40 per cent. All this would mean that an employee who enters the scheme as of now at a price of $1 would be in for a windfall at the end of the stipulated period. But barring Infosys and may be Satyam there lies a question mark over how many would be able to go in for an ADR and avail of the scheme.Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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