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Companies swear by Esops despite FBT dampener
September, 07th 2007
Companies still believe that employee stock options work as a motivational driver for employees notwithstanding the fringe benefit tax levied on Esops, according to a survey of knowledge-economy companies by Deloitte Haskins & Sells (DHS). Levy of fringe benefit tax on Esops was announced in the Union Budget 2007.

We chose to figure out if the knowledge economy companies picture the budgetary development as a dampener to the companies, said DHS partner KR Sekar.

About 68% of the respondents viewed the tax as a cog in the wheel and cited increase in administrative process as different employees would sell at different points of time which could, in turn, create legal hurdle for performance and returns of the company . Also 90% of the respondent companies are inclined to continue with the practice of issuing Esops at lower than the fair market value.

As the company has an option to recover FBT from the employees, respondents have said that the FBT would be factored as part of the cost to company (CTC). However, most companies admit that Esops in the light of FBT is seen to be of diminishing attractiveness from an employers perspective.

The fact that Esops continue to be considered a motivational value driver is not surprising as these have come to become key HR tool for all companies. Conflicts and controversies have not taken the sting out from companies in granting Esops, according to DHS partner M Lakshminarayanan.

While 56% of the respondents were open to the idea of passing on the incidence of the FBT (to the employees ), curiously, 58% of the respondents felt that recovering the FBT from the employee was not acceptable .
As regards the tax deductibility of FBT, companies have indicated it to be an expense and deductibility to be allowed only if FBT is not being passed onto the employee.


68% companies term FBT as a cog in the wheel, 90% to continue with Esops at lower than fair market value, 56% for passing on incidence of FBT (to employees), 58% recovering FBT from employee not acceptable.
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