Private Banks Look At New Ways To Retain Employees

HDFC Bank’s board, for instance, approved 10 crore restricted stock units (RSU) at ₹1 each for mid- to junior-level employees as part of their compensation structure. It will offer at least one share to an employee at a future date if certain conditions such as a pre-defined service period are met. The incentive may also be linked to employee performance.

Unlike employee stock options (Esops), employees will not have to pay to receive an RSU, but they will have to pay applicable taxes for the shares. The HDFC Bank management said the employee stock incentive plan will be relatively less dilutive and help trim attrition.

“RSU is similar to ESOPs, but comes at a deep discount and the number of RSUs will not have any impact on the bank. If the bank was to grant three Esops at a fair value of ₹500 each, the employee gets ₹1,500. In this case, if 1 RSU is given, the total compensation will be ₹1,500 and would avoid shareholder dilution to some extent,” said Srinivasan Vaidyanathan, chief financial officer, HDFC Bank. “It is intended for mid and junior management up to 10 levels below the CEO”.

Vaidyanathan said the step will “lower attrition significantly” and “bring enormous levels of productivity.”

“We wanted to make employees’ shareholders and get them to participate. The approval is for four years and the vesting period is five years,” he added.

Kotak Mahindra Bank, too, has been offering stock appreciation rights, a bonus linked to the performance of the stock price, to its senior management. “In the last 6-8 months, attrition levels have been rising. This is not restricted to the banking industry. Companies have started hiring and people are moving to locations of their choice or with flexible roles. In banking, attrition is steady at double digits. However, in some verticals and functions, it is in the range of 20-30%.” said Sukhjit S. Pasricha, group chief human resource officer, Kotak Mahindra Bank.

HDFC Bank’s move has got its rivals thinking. “We are looking at it internally, whether this compensation structure will be beneficial to the employees. While attrition has become an all-industry phenomenon, RSU is a great way to create value for employees. However, will younger employees see value in this is the key question, especially as there is a tax implication. I’m not too sure,” said a senior banker with a private sector bank.

Since September, banks have been cutting down on Esops after the Reserve Bank of India asked them to recognize these as expenses in profit and loss accounts. Bankers are now exploring if RSUs could replace Esops to retain mid- and junior-level management, a segment seeing record attrition levels.

“In the last 18-24 months, a lot of exits have happened as capital markets boomed, creating the need for larger teams to address the opportunity. Banks hired external candidates for senior roles so that they could hit the ground running. This led to exits at the lower rungs who were hoping that they were next in line. Many headed for fintech startups, which need such skill sets. RSUs will help retain the middle to senior order and may be replicated by rivals,” said Harpuneet Singh, managing director, Russell Reynolds Associates, a management consultancy.