The Problem with ESOP’s
February 12, 2025
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The previous articles in this module discussed how companies must be cognizant of the market trends when deciding on compensation and nonmonetary rewards. This is especially the case when premium talent has to be rewarded.
Since top quality talent would migrate to the companies where they are rewarded adequately, so companies in order to retain them must make market rate surveys and engaged in research of the reward structures in other companies in the same industry.
Further, even to retain the other talent, companies must research the minimum market rates for hiring employees so that they can base their compensation policies accordingly.
The key theme here is that in order to be competitive companies must gauge the mood of the market as well as understand how their competitors are paying and the kinds of reward systems in place there. This is especially the case with the IT Industry where the competition for talent and top quality talent is intense.
Many companies in the emerging markets like India, China, and Brazil conduct market rate research to understand how global companies are paying their employees. Since these emerging market companies want to emulate and imitate the pay structures of the multinationals, they often benchmark their reward systems against these companies.
In India, many companies like Infosys and Wipro have set their compensation strategies after researching the strategies of multinationals and though the base pay is much lower, they follow the broad components of the pay structure.
Further, with many multinationals like Fidelity following global and world-class norms in nonmonetary and monetary reward systems, they are the examples and the role models for other companies to follow suit. In this manner, the entry of global companies is indeed a positive development in terms of the reward systems.
The way in which companies undertake market rate research is by hiring market research consulting companies to perform a salary survey and to find out each year how much hikes the other companies are handing out.
By engaging the services of these firms, companies would know the industry trends and would ensure that they are not behind or too much above the industry norms.
In the context of the ongoing global economic crisis, it has become more necessary than ever to conduct market rate research as companies must know the industry standard for the hikes and then base their annual increments accordingly. These are some of the practices that companies resort to when deciding on the quantum of hikes and pay increases every year.
Finally, as in business terms, the companies have to be competitive in terms of salary hikes and reward systems as well. Hence, there is a compelling need to understand the industry trends and base one’s compensation system accordingly.
As mentioned earlier, only those companies that manage to be competitive are among the most preferred employers where top quality talent migrates.
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