The Problem with ESOP’s
February 12, 2025
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This article proceeds under the premise that performance by employees on the job needs to be assessed on a holistic basis. For all of you who are aspiring to make a name for themselves in the corporate world, you need to remember that corporates judge you based on on job performance and the demeanor that you display. While the former is easy to understand as it relates to delivering consistent, repeatable, and accurate results, the latter is sometimes taken for granted.
In other words, the attitude that you show on the job, your communication skills, your leadership abilities, the levels of motivation, and finally, the ability to articulate the big picture are secondary bases of performance. What this means is that you cannot simply think that delivering lines of code, or meeting sales targets alone is enough in the real world. The other attributes are equally important and as studies done on emotional intelligence show, the ability to empathize with others, motivate and lead others, and the ability to rise to the occasion are determinants of job performance.
The previous section set the context for a holistic approach towards performance management. If we now consider the rewards structure for such performance, we find that the performance as determined by the above parameters needs to be rewarded appropriately.
In other words, the appraisal at the end of the performance cycle has to translate into grades that reflect the basket of attributes described above.
An ideal reward system would be made of financial and non-financial measures that include bonuses, pay hikes, and non-financial measures like perquisites and benefits that can be converted to monetary values but are inherently rewarding in a non-monetary sense. This means that companies ought to take a holistic approach towards performance and not merely based on narrow results, which without the presence of soft skills and emotionally intelligent behavior would lead the company nowhere.
Often, it is the case that superiors have favorites among the employees and this leads them to reward those favorites and discriminate against those who are not in their good books. As mentioned above, truly excellent companies inculcate an organizational culture that is non-discriminatory, unbiased, and free from prejudice and harassment. Hence, the reward structure in these organizations follows the principles of fairness, justice, and equity. Of course, in many companies, the tendency to play politics and have favorites is too hard to resist for many. Therefore, without getting into idealistic notions, it has to be mentioned that unless companies evolve reward systems that are at least consistent with basic fair play principles, their organizational cultures would be better off in the longer term.
Before concluding this article, one has to reiterate that the reward system must motivate rather than depress the employees and studies have shown that most employees leave organizations because of their immediate bosses. To phrase it differently, attrition is because employees leave bosses rather than companies. Hence, the reward systems must be devised in a manner where the immediate boss does not have final say and instead, 360-degree feedback and escalation mechanisms are available to the employees.
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