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The HR Key to the ESOP Vault
Employee Stock Option Plans (ESOPs) are integral in ensuring the recruitment and retention of employees as well as adding to their motivation, dedication and the promotion of an involved and invested corporate culture…but is your plan realizing its full value? A recent (2007) study conducted by Farrell, Krische and Sedatole attacked that very subject and overwhelmingly, the answer is no.
Using a 'true-value' Black-Scholes figure as a benchmark, the researchers compared subjective employee feedback to determine if the costs of an ESOP are producing the benefits for which it is intended. With 76% of employees valuing their plan lower than the black book value, it is clear that this is not the case. Peripheral factors such as the amount of previous investment in the company, vesting time, tax rates and faith in the future of the company’s stock price influenced the perception of an ESOP’s value but the true value of the plan remained locked away.
The answer, however, is not to seek alternative incentive initiatives but rather to educate employees and demonstrate to them the inherent value contained within their plan. After completion of a stock option education program that informed participants of the functionality of their plan and the Black-Scholes value associated with their options, 84% of those who undervalued their options before the program had an increase in how they subjectively viewed their plan’s value.
Effectively communicating to participants the value locked in an ESOP can significantly increase the plans perceived value and benefit, which in turn, fosters the intended corporate impact to employee retention, recruitment and motivation. Solium offers communication services packages to help you effectively communicate to you participants.
