Time Scale or Stock Option?

Things change over time. Generations have been witnessing change in many aspects of life. Advancement in communications has led to sea change in Trade and Commerce just as in any other walk of life. 

Fifty or sixty years ago, one of the major problem confronting youth in independent India as well as in other parts of the world was unemployment. Second World War had destroyed economies of most of the countries in the world. Countries taking direct part in the war suffered worst damage. Even the other countries which did not take part in the war directly suffered as well. Many of the able bodied young men were either killed or wounded in the war, especially in Europe. Agricultural lands became barren due to vagaries of war and no crops being grown for five to six years. End of the war resulted in loss of several jobs as well. Unemployment emerged as a major issue all over the world. Efforts to stimulate the economies and create jobs became the primary goal of administrations throughout the globe.

Governments were the major employment providers in those years. Finding a job in some government wing provided a stable and regular income for workers and their families. Manufacturing industries came in next and provided thousands of jobs. These jobs also offered post-retirement benefits in the form of pension and provident fund benefits. A young man who got a job in a government department or a factory was believed to have settled in life. Parents heaved a sigh of relief. As most of the women folk still remained housewives, girls were not competing for a share in the job market. Lower education level among girls in many countries also contributed to this. Getting a secure job led to immediate marriage. This led to One Life - One Job - One Wife life cycle. Get a job in the 20s, work for another 40 years in the same job and retire first from the job and then from life became the norm.

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Severe competition in the job market ensured that the employer decided what to pay. The candidates seeking employment were happy to get a job first. Total emoluments were far from the issue of reckoning while joining the job. A passenger standing in a bus stop would like to get on the foot board of a crowded bus and get moving. Once on the foot board, he would push his way to find a standing space inside the safety of the bus. Once standing inside the bus, the next goal is to find a two-by-three or three-by-four seat. Once that is secured, window seat would be coveted. This was true of securing jobs as well. May be a temporary job at first, then quasi-permanency and finally a confirmed job. Then the role of trade unions came to bargain for better rights. Employers decided what should be the pay and which are the grades of employees. 

All employees were paid equal salary at a particular level of work. Seniority became an important distinguishing factor now. All employees working at the same job description were paid equally, but there had to be a small distinction between someone who joined that level now and someone else who did the same job for several years. Annual increments and Time Scale ensured that this was taken care of. At a particular level, all employees got the same salary with a small fixed raise each year called increment, which continued for 20 or 25 years known as time scale. Horses and donkeys were paid the same salaries. Even bargaining trade unions were restricted to improvements in increments and time scales. The world thought that an equilibrium was found and things were satisfactory for some time.

Better performing employees had to be rewarded to keep up morale. Promotion from one scale to another fulfilled this need. Employees worked for getting promotions so that they could move from one time scale to another which would ensure a jump in their monthly emoluments. Senior level employees were rewarded with other benefits called Perks. A residential quarters or a motor car were the most common perks. 

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Advancement in technology leading to development of trade and commerce brought in requirement of more skills in job markets. Sales and Marketing needed its own skill sets demands. More adventurous way of life attracted the younger generation. Mass recruitments through announcements and notifications gave way to campus and private recruitments. Higher skill requirements compelled employers for scouting suitable candidates from among the workforce in competitor organisations. Educated and skilled girls flooded the job markets and started competing equally with men. Waiting for annual increments and moving from one time scale to another did not enthuse the younger generation any longer. Recruiting new talent became a primary need for growing companies and industries. Head Hunters made their debut and poaching of employees in competitor entities turned out be an accepted practice. Working in a job continuously became a negative point now. Principle of being settled in life itself became unsettled. If someone did not change the job for five years, questions were raised about the person's capacity to secure a better job. "Did he/she not get any other offers so far?" became a normal question!

Pension and Provident Fund benefits became less important as retirement at a certain age itself lost relevance. Older people started working even after superannuation. Younger people started believing in earning well in the earlier years and spend time to pursue other interests in life in late 40s or early 50s. They believed in building their own portfolio and financial planning. 

As a natural corollary of these developments, employees became aggressive and turned out to be equal partners in job discussions. "What should be the emoluments?" became a point of negotiation between the candidate and the prospective employer. "I give this" and "I need this" led to " We settle for this". Along with other factors and considerations, "Signing Bonus" entered as a tool to compensate a candidate changing the jobs and entering a new position. Annual increments gave way to pay raises and annual bonuses. These bonuses were not a general annual gift to all employees. Instead it became a confidential issue between employer and the employee. Persons working in the same positions in an organisations got different annual emoluments. Time Scales departed because nobody, neither the employer nor the employee, even thought of a 20 or 25 years timeline!

Rewarding good performers had to find a new method since promotions were not enough now to retain the right talents. Managements of large corporates started giving a part of the stake in the ownership of the companies to senior level functionaries. This served twin objectives; rewarding the better performers as well as ensuring loyalty during the period one worked with the organisations. Employee Stock Options (ESO) became a part of the annual pay packet. New employees could now see themselves as millionaires in the ESO mirror. It was not a image in the mirror, many indeed became rich and famous. Some of them started their own companies in due course. "Start Up" became the buzzword in the commercial and financial markets. The era of start ups is indeed now progressing very fast.

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Everyone knows about Amazon. If someone were to ask a school going kid what is Amazon, the answer would be different. It is no longer a major river in South America but a company that delivers a parcel to your house. Many housewives today cannot sleep unless they had at least one parcel delivered by Amazon to their house. It is a big multinational company focusing in e-commerce, cloud computing and Artificial Intelligence and based in Seattle, Washington, USA. It is the largest e-commerce market place in the world, both by revenue and market capitalisation.

The growth of Amazon is indeed baffling. The company went public in 1997 and the shares made a debut at $ 18 per share. The company made three stock splits (bonus issues) within 15 months. A 2:1 stock split in June 1998 was followed by another 3:1 in January 1999. One more 2:1 came up in September 1999. A $ 100 investment got 5 shares in public offer. 5 shares became 60 shares within 15 months. The share price crossed $ 2050 on September 2018 making it the second $ 1 trillion company, closely following Apple which crossed $ 1 trillion mark in August 2018. At that point, $ 100 invested in 1997 was valued at $ 1,20,762 giving a return of a whopping 1,20,000% in 20 years! Promoter Jeff Bezos sold $ 1 Billion worth of shares recently and still holds about 16% shares in the company, making him the richest man in the world. Amazon shares have presently faced a dip and still quoted at $ 1,632 today. One year projection for share prices is $ 2,137 and 5-year projection by market analysts is $ 4,313. The graph shown above is the Amazon share price graph over the years.

Amazon is one of the companies known to give stock options to its employees. Let us take a hypothetical case of a young aspirant taking a job in this company today. What should be the option - to take a higher salary in lieu of stock options or settle for stock options and hope for the best? Stock options are a small part of the package at junior levels. From the history of the company, stock option appears great. 

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Is stock option the best in all cases of securing jobs or while changing jobs? One cannot be so sure. How to become a millionaire? This question has a wonderful answer. Start as a billionaire and enter the stock market. You are sure to become a millionaire very fast, is the answer. Thousands have made millions in the stock market. Millions have become paupers at the same time. Stock market investments and trading is not for all. 

Want to try your hand in stock market investing or trading? Investopedia offers "Free Stock Simulator" where one can trade in a virtual environment without fear of loss. After practicing and learning for sometime, and gaining confidence one can venture into real trading in stock markets.

Playing in the share markets is a wonderful pastime. If you succeed in the venture, you become rich and a financial wizard. If you fail, you can become a philosopher!