New Delhi: Employee Stock Ownership Plan (ESOP) cannot be the only way of rewarding employees and ‘Total Employee Value Proposition’ should be the key to retain employees, said N N Akhouri, senior vice president (HRM), Hero Honda Motors at a meeting on Employee Benefits and Long Term Incentives: Employee, Employer And Cost Perspective, organized by CII.

Companies should develop innovative and secure options for employees and ESOPs should be given to employees in combination with other rewards . It must be part of a holistic package.

Incentives and rewards should focus on creating a vibrant ownership of the company, which can step up employee loyalty. Fluctuation in market prices can create a tendency to offload ESOPs and thereby generate uncertainty among employees.

“Option value is the amount for which the option can be exchanged between knowledgeable and willing parties in an arm length transaction”, said Mr. Tarun Gulati, vice president, ESOP Direct. He said that the ‘fair value’ increases with the increase of market price, volatility, expected term and risk free rate. ‘Fair value’ decreases with increase of dividend yield income and exercise price, he added.

Compensation cost is charged to profit and loss over the vesting period and disclosures to be made in the financial statement. Companies should take ESOPs into account for accounting and disclosure relating to stock–based employee compensation cost.

Companies should devise framework for assessment, establishing processes, analysing and formulating decisions to respond to revised AS - 15. Also assessment of standard rate for specified funding should be based on companies’ past experience, industry experience and company’s business plan projections.

Regular interaction between HR professionals from the industry would give new dimensions to the understanding of revised employee benefits accounting standard and provide an overview of industry perspective of employee stock options and comparison with International Accounting Standards.