Apr 5, 2000|
ESOP fables go sour
Software stocks in the last one-week have fallen by nearly 30%-40% and though the fallout of this may be inexpensive stock prices for investors it could also mean de-motivated employees in software companies. Read the ESOP fable to understand this.
In 1998 when leaders of the software industry realized that a great demand for software was coming up in the form of ERP, Y2k and Internet they had one crucial question in their heads and that was "How to hire, retain and motivate employees?" And so they approached God and God said "Give them ESOPs and offer prayers to NASDAQ, BUT...(software heads were in such a hurry that they came back to the earth without hearing God fully).
In 1999 software companies realized that this plan of God worked as NASDAQ boomed (companies that had no profits were also valued highly) and employees became wealthy with ESOPs. The world got split into "ESOP haves" and "ESOP have-nots". It also created complexities for others who did not have ESOPs. For many, it was embarrassing to say that they earned only cash salaries. Parents were shocked to be told by their children that they wasted their lives earning salaries for 40 years (which actually parents had used to feed their ESOP wealthy children!!) and not ESOPs. The story went on and on with "this guy is worth this much" and "that driver is worth that much". Unfortunately employees forgot that they could convert their ESOPs into cash only after a few years and values at the time of encashment could be different.
Yes, employees were motivated but in the process some of them also lost focus. Many of them bothered only about their ESOP values (they wanted portfolio trackers that updated every second) and not on the work they did. One basic tenet of good living "Focus on your actions and not on the results" was forgotten. Some of them also became greedy and borrowed money to support their rich lifestyles assuming that they will be wealthy when they sell their ESOPs later.
Enter the new millennium and NASDAQ came out of its amnesia and asked, "Where is money?" and began to crumble under its helium supported values as it had no answer to this question.
It now appears that employees with ESOPís are agitated, loosing sleep and are also de-motivated because of the fall in their net worth. So the wealthy software heads again went to GOD and GOD said "The last time you came here you did not hear me fully, what I wanted to say was that NASDAQ for all the valuations it gives to CHIPS, has little memory of its own and frequently goes into amnesia and forgets the basic tenets of valuation. So this time listen to me carefully. Give ESOPs, but tell the employees to focus on their work and only look at creating genuine value for their companies which gets reflected in the book value, AND....(software heads were in such a hurry that they came back to the earth without hearing God fully).
More Views on News
Aug 2, 2017
A better than expected turnaround in performance results in a change in view.
Jul 27, 2017
Digital services drive growth for Wipro in 1QFY18.
Jul 14, 2017
Infosys starts FY18 on an encouraging note with a stable performance.
Aug 5, 2017
How to get exclusive insider recommendations from Ankit Shah.
Jul 14, 2017
TCS starts FY18 decently despite an adverse currency impact.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407