The Role of ESOPs in Employee Engagement & Retention

A generous salary, an exceptional work culture, and a role filled with daily challenges – what more could an employee desire? Yet, there's another crucial aspect to consider: Employee motivation.

Employee motivation is what makes an employee stick to a company for the long term.

Wondering how to go about it? Well, your potential employee is likely familiar with ESOPs and is actively considering them as the next addition to their salary package.

If you're still uncertain about the benefits of ESOPs for employees, this blog is here to clear any doubts.

Let's dig in!

What Are ESOPs?

Employee stock ownership plans (ESOPs) are innovative employee incentive programs. They are usually offered beyond the fixed monthly compensation of the employee. They allow employees to purchase the company’s stock at a predetermined price after a specific period, usually referred to as the vesting period.

This plan lends a sense of company ownership to its employees, motivating them to perform better and lead with a sense of purpose.

Employee Retention: Explained

Now, first things first. Why do you need employee retention? Why prioritize employee retention over hiring new staff?

To understand this, picture this. You bring in a new employee, dedicate time and resources to train them, and after 4-5 months of onboarding, they're finally ready to contribute effectively.

But consider the costs incurred: both in terms of time and money. Your valuable resources are diverted to training and integrating the new hires into your operations, roles, and responsibilities. Meanwhile, you're paying them full salaries even as they're not yet operating at full capacity.

Now, imagine if this trained employee decides to leave within a year or even sooner. It means restarting the hiring process from scratch, investing another 4-5 months in training, and consuming even more resources. This cycle drains both time and finances, highlighting the critical importance of employee retention.

Okay, but, how does equity come into the picture? What’s the role of employee stock ownership plans in employee retention? Let’s find out next!

Role of ESOPs in Employee Engagement & Retention

When you ask any HR recruiter about their primary concern regarding the employee workforce, they'll invariably mention one thing: attracting and retaining top talent. It’s obvious, isn’t it?

With ESOPs, HR professionals can benefit in not just attracting but also retaining top-notch employees for the long haul.

Here's how ESOPs make a difference:

• Shared ownership, employee motivation & satisfaction:When you provide ESOPs to your employees, the employees gain a sense of belonging and ownership of the company. This motivates them to perform to the best of their abilities and even take responsibility for improving the company's success metrics. For instance, at tech giant Google, the stock ownership program resulted in increased dedication and innovative thinking among employees. Employees take pride in their work, knowing that their efforts directly impact the company's value.


• Alignment of employee and company goals: ESOPs align employee and company goals. Take the example of WinCo Foods , where employees' financial gains are tied to the company's performance. Here's what the company says, "We believe our employees should share in the success of our company in a tangible way. That's why we created an Employee Stock Ownership Plan ("ESOP") more than 30 years ago. Participating in the ESOP program means employees are part owners of the company and benefit financially from a job well done. In this way, there is direct incentive for employees to work hard and take pride in what they do; that is why our stores are cleaner, our prices lower and our smiles are bigger." This alignment ensures a collective focus on achieving shared objectives, ultimately enhancing overall organizational success.


• Long-term financial benefits of ESOP participation Wealth accumulation for employees stands out as a potent factor in promoting employee retention. Consider this: when employees see a direct correlation between their efforts and their financial future, they become more inclined to contribute innovative ideas and strive for excellence. This helps boost employee commitment, translating into increased productivity, loyalty, and long-term tenure within the organization.

Now, let's explore some companies that have effectively leveraged ESOPs to enhance employee retention.

Companies With Successful ESOP Implementations

1. Jindal Stainless

Jindal Stainless Limited , India’s leading stainless steel manufacturer, granted 15,68,266 stock options for around 150 senior team members through a blend of ESOPs and Restricted Stock Units (RSUs). These options will vest over four years, depending on performance criteria, aiming to attract, retain, and incentivize talent.

The Managing Director, Abhyuday Jindal says, "The implementation of ESOPs is a testimony of our intent to retain our people, and make them true partners in our progress. Besides, it helps align the interests of our senior team with our long-term growth plans. By offering employees a stake in our success, we foster a culture of collaboration and shared achievement, ensuring that every individual contributes to, and benefits from, the growth journey of the company.”

Also, Sushil Baveja, the CHRO, echoes this sentiment, "We are thrilled to introduce ESOPs, offering another opportunity for wealth creation to our key talent. This initiative aims not only to attract and retain talent but also to develop a deep sense of ownership among our employees, aligning their interests with the success of the business. We are confident that this will propel us towards achieving our objectives and driving sustained growth in the future for both the company and employees.”

2. Razorpay

Fintech platform Razorpay also proudly offers an ESOP scheme. Their recent milestone, the fourth and largest ESOP buyback sale, witnessed 650 existing and former employees benefitting from a $75 million (almost Rs 578 crore) transaction, garnering widespread acclaim. Notably, Razorpay has facilitated wealth creation for over 1,940 employees across various hierarchies.

Reflecting on the fourth ESOP sale, Harshil Mathur, CEO & Co-founder, Razorpay, expressed, “Today, we take this opportunity to honor our team but really, the honor is Shashank’s (co-founder) & mine. The last two years have been challenging for each one of us, and despite the challenges, our Razors stuck together and collectively guided the company through massive growth. I feel nothing but gratitude to see how every teammate in the company believes Razorpay to be their own family and sees it through every challenge. These ESOPs are a way to give back to our Razors and a small effort in making a difference in their lives.”

3. UpGrad

upGrad is another popular firm that boasts an ESOP policy for attracting and retaining employees. The online education firm started by granting ESOPs to 600 employees in 2021, who have completed more than a year with the company. The company has only expanded its ESOP pool size since then.

Mayank Kumar, co-founder and MD of upGrad, stated, "It is our conscious call to grant ESOPs (employee stock ownership plan) to our team as gratitude towards their commitment. We believe this will further foster their and their family's belongingness to our institution and create a shared ownership, in addition to long term wealth creation opportunity with us."

Tips for Implementing ESOPs Effectively

• Communicate clearly: Ensure that all employees understand the purpose and benefits of the Employee Stock Ownership Plan (ESOP). Clearly communicate how their contributions directly impact the company's success and the potential rewards they can reap through stock ownership.


• Establish transparent guidelines: Develop transparent guidelines outlining eligibility criteria, vesting schedules, and performance metrics for stock allocation. This ensures fairness and equity in the distribution of stock ownership, while mitigating misunderstandings and conflicts, ensuring smooth ESOP implementation.


• Provide ongoing education: Offer comprehensive education and training programs to familiarize employees with the intricacies of stock ownership, financial literacy, and the long-term benefits of participating in the ESOP. This will help encourage active participation and ensure that they make informed decisions regarding their financial well-being.


• Evaluate and adjust regularly: Regularly assess the effectiveness of the ESOP through feedback mechanisms, performance evaluations, and benchmarking against industry standards. Use these insights to refine the plan, address any shortcomings, and adapt to evolving organizational needs and market dynamics. Continual evaluation and adjustment ensure the ESOP remains relevant, maximizing its impact on employee engagement and retention.

By now, you should have a solid understanding of the advantages ESOPs offer in retaining employees. We hope that real-life examples from successful companies helped you further understand the substantial benefits these programs can yield.

If you're looking for a reliable solution to manage your company's ESOPs and track your employees' granted, vested, and exercised options, look no further than Vega Equity. Our platform not only streamlines ESOP management but also enhances employee engagement by providing easy access to real-time ESOP information. All the best!