For over a decade, there has been repeated mention of stock options or grants to employees in Budget speeches, addresses to the chief executives of public enterprises and reports on disinvestment. While there has been little movement on this, many employees in the public sector have also shown little enthusiasm to participate in ownership, fearing a sudden drop in stock prices after they buy.
There is much confusion in the objectives to be achieved. While some view it as a political move to soften trade union opposition, others expect to make millions out of a stock option scheme a la managers in software giants. Many chant the trite objectives of attracting, motivating, and retaining critical people, though deeper analysis will show that they cannot be achieved when most required ie, under hyper growth conditions. There is much muddled thinking on the objectives, instruments, implications, the variety of structures that are possible and the consequences of all these.
A few attempts were made during 1997-98 in the oil companies, Engineers India Limited and the Standing Confe-rence on Public Enterprises (Scope) to sensitise senior executives and trade union leaders on the structures and dynamics of equity linked plans. Most of these efforts (with which I was involved) aimed to promote a policy and a customised design that would be most appropriate to the public sector with much upside and little downside to the government, the companies and the employees.
In the case of public enterprises, the main objective must be based on a philosophy of employee ownershipnot merely as performance incentive for a handful of managers or one-time sop for workers. There are just a handful of companies in India using broad-based plans for promoting employee ownership. Many cite the hundreds of companies in the US, including Pepsi, Microsoft, Wendys and Starbucks, that have broad-based plans.
Employee stock options not a reality, despite promises made by governments
For PSUs, philosophy behind stock options should be employee ownership
This kind of ownership deserves a serious effort by the government
The National Centre for Employee Ownership in the US has been promoting this relentlessly with training, research and capacity building. Its surveys show that 37.8% of companies provided stock ownership plans for 50% or more of their employees, and 16.3% granted options to a similarly broad group. 23.3% of company employees reported owning stock in their companies, while 14.4% held stock options. Research has shown the positive effects of employee ownership to corporate growth (2.4% faster); return on assets ( 2.7% greater); stock prices (outperforming Dow by 27 percentage points and S & P-500 by 18 points); productivity levels (higher by 16.8%), return on assets (2.05% higher) compared to companies that do not have them.
Stock exchanges and institutional inve-stors also may see the benefits of the swiftly expanding ownership plans. In the US, there are over 11,500 employee stock ownership plans investing in employer stocks, involving over 20 million employees with plan assets of over $500 billion. The number of employees participating in stock plans of one variety or the other is estimated at about 35 million.
Employees are the literate, better informed and the more affording class, even in our country. If they are sensitised and trained to make informed decisions in exercising their grant/option rights, not only will the base widen, but ownership and equity cultures will be promoted. They will contribute vastly to the strength of the financial system. They may even contribute to better disclosures and transparency, and as evident from research, to better valuations of stock as well.
There have been many futile attempts at worker participation in management. Employee participation in ownership of public sector stock deserves one serious effort that doesnt get caught in the maze of law, finance, public enterprises and the responsible ministries.