ESOP fables go sour - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

ESOP fables go sour

Apr 5, 2000

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).

Equitymaster requests your view! Post a comment on "ESOP fables go sour". Click here!

  

More Views on News

WIPRO Share Price Up by 5%; BSE IT Index Up 0.1% (Market Updates)

Apr 22, 2021 | Updated on Apr 22, 2021

WIPRO share price is trading up by 5% and its current market price is Rs 494. The BSE IT is up by 0.1%. The top gainers in the BSE IT Index is WIPRO (up 5.1%). The top losers are FIRSTSOURCE SOLUTIONS (down 0.1%) and PERSISTENT SYSTEMS (down 0.1%).

WIPRO at All Time High; BSE IT Index Down 0.1% (Market Updates)

Apr 22, 2021 | Updated on Apr 22, 2021

WIPRO share price has hit an all time high at Rs 494 (up 3.6%). The BSE IT Index is down by 0.1%. Among the top gainers in the BSE IT Index today are WIPRO (up 3.6%) and TATA ELXSI (up 2.0%). The top losers include HEXAWARE TECHNOLOGIES and MINDTREE (down 0.6%).

Why Subex Shares Rallied 32% in the Last Two Sessions? (Company Info)

Apr 22, 2021

Share price of the company witnessed upward rally in the last trading session even as share markets remained volatile.

More Views on News

Most Popular

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

Top 3 Nifty ETFs to Buy Now (Fast Profits Daily)

Apr 20, 2021

In this video I tell you the three Nifty ETFs I think are the best.

A Stock with 700% Return Potential Comes with Additional Payoffs (Profit Hunter)

Apr 15, 2021

Narayana Murthy was one of the first unicorn founders to get the backing of this entity...

11x Bankruptcy to Bluechip Stock: A Rare India Revival Story (Profit Hunter)

Apr 16, 2021

There is no stopping this 11-bagger stock from significant upside.

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE IT


Apr 22, 2021 (Close)

S&P BSE IT 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS