3 Reasons Why ESOP Could Raise Your Team's Morale
In Southeast Asia, large companies and startups have been maximizing ESOPs as a strategy to lessen turnover rates—retaining their workers as the demand for tech talent has grown. Athar (2020) stated that several companies in Asian countries are making use of ESOPs to evolve their workplace. In Japan, it is said that 91% of firms listed have ESOPs that benefit more than half of their employees. In the Philippines, ESOPs have created a shift in the workplace culture.
Based on an article from KrAsia in 2021, startups in countries like Indonesia and Singapore have been adopting ESOPs as the concept has gained popularity, especially in the tech industry. It is also a way to attract talent as some Southeast Asian startups are unable to afford high salaries. And as more talents are becoming aware of ESOPs because of their popularity in the US and China, startups in the region are now adopting the concept as well.
Today, a small Southeast Asian startup has to compete with tech giants like Google or Microsoft. As such, startups are looking for ways to build up their team of highly skilled employees to create a solid foundation for their company in order to compete in the global market. ESOP is a solution for startups.
Why should businesses start adopting ESOPs?
Fewer taxes for employees: ESOPs could offer tax advantages for both companies and employees, depending on how the tax system is like in the country. For example, in Singapore, employees are taxed during the exercise of the options. Depending on when the employees decide to exercise their options, this could lead to tax savings for them. In certain countries such as the United States (US), selling shares to a third party will cost companies capital gains tax, while selling stocks to their employees through ESOP is tax-free (link). This is a strategy for an ‘alternative to sale’ approach on ESOPs.
A motivation booster strategy: According to an article from The Business Times (2021), Southeast Asian tech startups are at a heated competition in finding talents for their teams. As demand is high for tech talents, startups are starting to implement ESOP very early in their business to retain their employees.
Southeast Asian startups, especially in the tech sector, are increasingly familiar with using ESOP as a way to retain highly skilled employees in this talent competition. Startups use ESOP to motivate employees as a reward and benefit and to convince them to stay in the company.
Ways to boost employee morale through ESOP
Founders may also look at ESOP from another perspective, implementing a strategy for improving overall company performance. How? By raising the morale of your entire organization. And here are three reasons why ESOPs are the way to go:
1. Use of psychological ownership
According to Kruse (2017), there has been a meta-analysis of existing studies including 56,984 firms which states that employee ownership results in, despite a small effect, an extremely significant positive relation to a company's overall performance.
Generally, employee ownership is helpful in boosting a company's performance. When workers are offered such benefits, the entire team's perspective will shift as everyone now shares the same goals, which will lead to the company's success. When employees' morale is boosted through ownership, they will improve their performance, creating a win-win situation for employees and the company.
2. Reward or bonus to motivate employees
Aside from employee ownership being a big motivating factor for employees’ performance, ESOPs is also offered as a bonus for top-level performers. Receiving such bonuses can strengthen motivation and performance. High motivation means higher morale and incentive to work harder, which will lead to better performance.
Companies that offer ESOPs as a benefit like a good healthcare plan or year-end bonuses will be attractive to employees. To the employees, ESOPs are a wealth-building opportunity for them, which can lead to increased motivation and quality performance.
3. Boost morale through a sense of job security
Kruse (2016) says that employee ownership companies have higher rates for survival and have lower reported cases of layoffs. With the security of the firm's survival, employment stability gives employees the confidence that they are working in a growth-seeking environment that promotes skill investment and a workplace ownership culture, raising overall morale in their respective departments.
As ESOPs are gaining popularity in Southeast Asia, more employees prefer working for companies that offer ESOP. Employees are more aware of the monetary value that ESOP brings, which can lead to a sense of job security.
ESOP is an option for companies or startups in Southeast Asia as a strategy to attract and retain talent. ESOP creates a win-win scenario for both organizations and employees. Employees gain financial benefits and ownership, while companies can leverage the shift in workforce attitude and motivation to achieve business goals.
Southeast Asian startups have been adopting this concept as a way to attract talent and motivate their employees. With the tough competition for talent nowadays, especially in the tech industry, ESOP must be a key tool in your talent strategy.