In order to retain experienced employees with the help of better incentives, Finance Ministry has agreed in-principle to allow public sector banks (PSBs) to offer employee stock option plan (ESOP) to their employees from next financial year. This step will help motivate the employees to build a strong financial status of the bank. ESOPs could be given by those banks which have not only earned substantial profit but also made remarkable improvement in managing NPAs.
Based on the suggestions of the Banks Board Bureau (BBB), the Finance Ministry has given an in-principle nod, but the finer details are being worked on, like what percentage of profits can be designated for ESOPs. One of the proposals is to issue shares equivalent to a certain percentage of banks' net profit to employees which is being examined. For large banks, the ESOPs could be as much as 5% of profit after tax, while for the smaller ones, it could be about 3%, but no decision has been taken yet. As per suggestions by the BBB, other benefits like performance-linked packages and bonuses are also under consideration.
ESOPs are common in the private sector, where companies offer stocks to reward and retain key and top-performing employees. Since the employees stand to benefit from any appreciation in stock price, ESOPs also help in aligning the interests of the employees with those of shareholders.
BBB chief Vinod Rai had said that the compensation package across the board of public sector banks needs to be improved. He said ‘maybe we are not able to do much with the fixed part of compensation package but variable part we are hopeful that in the next financial year we will be able to introduce a far more attractive package which will have bonuses, ESOPs and other performance linked incentives as part of the package’. He added it can be monetary or non-monetary benefits to make it more attractive for professionals to enter public sector banking space.