Golden Handcuffs don't work

Golden Handcuffs are referred to anything that an employee sees likely accruing to her/him for the efforts made today. This could be bonus, salary hike, transfer, esop etc. For this article I will stick to the #Goldenhandcuffs being associated with ESOPs.

We humans are an ever-optimistic species. That is the underlying reason why people do what they do, they expect that the current actions will enhance their future. Likewise, we pursue our professional ambitions to always move forward in life. You read my article on the subject - https://www.dhirubhai.net/pulse/motivation-paradox-nirav-jagad/.

With the emergence of the tech enabled businesses in India, ESOPs gained prominence in compensation structures. It became a key component in an employee’s structure, to a point that the compensation negotiations included the potential wealth creation opportunity as a key selling point. No wonder potential and current employees are being offered chunky ESOPs: ?39% during interview / 53% at the point of job offer / 17% after offer acceptance / 11% in the first 30 days of working / 19% after 30 days of working (Source: Inc24.com article May 20, 2022).

There are significant monetary gains to employees for being part of the #ESOP plan. ESOP #buyback alone by the start-ups in the year 2021 gave their employees USD 440 Million.

But what happens when the valuations don’t keep pace with the expectations (some times hard sold to the candidates). It leads to dissonance and the tool that was intended to be the Golden Handcuff to the employees becomes the Trigger to look out elsewhere.

How can organisations get it right and not get caught in a downward spiral of exits?

• Right #Valuation:

Be realistic of what sort of #revenue that can be realised in the #future. ?A lot of organisations do not distinguish between Investor pitch and candidate pitch for a critical position. An over #performing organisation is always a pleasant surprise, no harm being conservative

• Educate the employees

You will be surprised how under-informed your employees can be about the potential earnings from the ESOPs. In this case, over-communication will not hurt. ESOP digitisation partners can make your lives easy here.

• Create liquidity events periodically

If you have the avenues (supportive investors and potential investor interest), please create opportunities for either buyback or primary or secondary placements. Remember, ESOPs is paper money until the employees see money in the bank. A #liquidity event will foster #trust towards the scheme and organisation.

• Different clubs for different shots

Be open to alter the scheme to accommodate the recent upheavals in the market. Warning, please distinguish this from the original plan. Such delinking will allow you the flexibility to revert to the old plan for enhanced vesting schedules.

• Create a loop

Monitor the vesting schedules and top up adequately to keep the key talent locked in for future. Try not to keep it too late in the vesting schedule such that it becomes very easy to match the unvested equity by a competing organisation.