Banking on ESOPs: Just do it and get paid for it

The Economic Survey has proposed skin in the game for employees of public sector banks through a stock option plan (ESOPs).

Public sector bank employees are paid fixed salaries, which, according to the survey, does not encourage risk-taking and innovation. Although PSBs control 70% of India’s banking market, they lag considerably in performance metrics when compared to their peers.

“Employees can constitute one of the blocks of new owners of PSBs through ESOPs that is conditioned on employee performance,” the survey said. “Ownership by motivated, capable employees across all levels in the organization could give such employees tangible financial rewards for value enhancement, align their incentives with what is beneficial to the PSB, and create a mindset of enterprise ownership for employees.”

The proposal comes when the Indian Banks’ Association and bank unions have been negotiating wage increases. The payslip component for PSB employees is revised every five years.

Bank unions agreed only recently to a performance-linked incentive scheme for their members, to be paid over and above the fixed component, in banks that report a minimum 5% growth in operating profit. The incentive scheme is likely to be implemented from FY21.

An ESOP, on the other hand, will reward only good performers. The survey said that a portion of the government stake can be transferred to employees exhibiting good performance.

Published in Economic Times on February 1 | Source:
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