Indian firms offer stock options to new recruits

Dec 19 2006 by Nic Paton Print This Article

India's booming economy and rampant war for talent is forcing many organisations into ever more desperate measures to attract and retain valued employees, including throwing stock options at new recruits.

According to the country's Economic Times, more and more Indian businesses are resorting to employee retention strategies from day one, with offering stock options to entry level management and engineering graduates one of the most popular methods.

Up until now, stock options were largely used in India, much as elsewhere, as an HR tool to retain talent at the mid to senior management level.

But now recruiters are predicting the trend is catching on for campus placements as well as new graduate hires.

Since stocks do not attract capital gains tax if sold after a year, even as an equivalent amount given as part of the monthly compensation package would attract an upfront income tax, they are becoming an ever more popular compensation tool across sectors.

Some HR consultants in the country are also advising clients, particularly those in the "sunrise" technology sectors, against stipulating minimum years of service with the company to become eligible for options.

But others have warned against the trend as it increases the overall quantum of shares of the company diluting equity.

In addition, the conventional thinking is that employees at the entry level are attracted more by a definite cash component than stocks, which will not only come to them at a later date, but also carries a risk element, HR consultants told the newspaper.