Stock option ‘key incentive to retain staff’

Equity-based compensation could help Kenyan companies reduce employee turnover and motivate workers, management experts have said.

They cited the success of such schemes in highly competitive European and American markets to back the proposal during a conference in Nairobi.

Brian Dunn, chief executive officer Global Compensation, Aon Hewitt, said that equity-based compensation - which includes employee stock ownership plans (ESOP) – offers employees long-term incentives that help them focus on company’s objectives.

Equity-based compensation has been effectively used to align the interests of executives and employees and helped create shareholder value. It also includes restricted stock, stock options and stock appreciation rights.

“It is a way of attracting and keeping employees that you value,” said Mr Dunn. “It helps drive long-term performance and value creation.”
He added that workers who become owners have a different mentality towards the use of company resources.

Mr Dunn said that having employees become part owners of the company helps change an employee’s perspective from that of being a worker to an owner, making them more responsible and productive.

The ESOP conference that was organised by Aon in Kenya comes at a time when local companies are struggling to attract and retain highly skilled employees in different sectors as competition for skilled staff intensifies.

Kenyan companies are also facing a challenge of attracting and retaining generation Y employees, majority of who are spending less than three years in any particular company according to research by research firm Synovate.

Mr Dunn said that equity-based compensation locks in employees because only those who have served a company for a particular period qualifies for the incentive.

“The more the senior the employee the more they are likely to accept a plan like this,” said Mr Dunn.

Capital gains

However, he added, a right mix of salary and equity was needed for other employees — especially lower cadre — for them to accept the plan.

Tax experts at the conference said that employees are also able to get tax benefits from equity based compensation, especially if share prices appreciate and in countries like Kenya where capital gains on stock are not taxed.

Research by Aon, which is headquartered in the US, shows that there are about 11,500 ESOPs covering 10 million participants in US alone and 10 per cent of America’s private workforce is in ESOP companies.

About 330 of the ESOP companies in the US are publicly traded while in nearly 4,000, employees are the majority shareholders.