How many shares of your own company should you own? I mean assuming you are the promoter CEO first generation person, I am not talking about you. I am talking to the Head (Operations) working in a bank which he joined as employee number 12…now the bank has 32000 employees.

Let us say this employee has a net worth of Rs. 3 crores (plus a house in which he lives) and Rs. 17 crores in the market value of the bank in which he works.

What should he do?

My take (you need not agree of course)…

Mr. A should sell 200 shares at Rs. 1500 each (or the prevailing rate) on the 7th of ¬†every month (nobody will accuse him of insider trading) and should invest this in a diversified balanced fund with about 35% in debt. This fund will grow without any tases for the next 16 years…and he will also have his pension plan in place. I am assuming that he will keep getting esop to add to his current holding of a few thousand shares!

Of course he may not need so much for retirement, so he should withdraw from his esop for his big time expenses too. Sending a child abroad for further studies, vacations, buying a car…remember his other investments can remain untouched so that will grow too.

It is a perennial thing that people keep asking “how much is too much”. And when people are optimistic they like to think of Microsoft, Alphabet, Apple, Facebook, Hdfc bank, Wipro, TCS, Hdfc Ltd,….and it is the job of the adviser to tell them about Enron, Satyam, Silverline, Crest Animation, Worldcom, …and keep their mind in balance! Such sharp, shocking, total losses are a reminder that investing where you work is riskier than it feels. It always feels nice to multiply 1,50,000 shares by Rs. 2000 and arrive at a nice big figure..but try 1,49,800 – it does not sound too bad dude.

Esop is not new. PnG launched its esop in 1880 and obviously still continues to give esop to its employees. We tend to buy esop because we feel ‘we are in control because we are working there’. Not true at all. We need to understand that even the owner like Azim Premji may not be in control of what should happen in the future to the company. Once we leave (lets say you leave TCS and join Biocon) actually your risk KEEPS REDUCING. This is because you will now have TCS esop and the Biocon esop – and they are in different industries.

Letting go is not easy. The adviser sounds like a villain when he says ‘sell your companies shares’ and the client comes up with “this company is lik a mother to me’ or some such emotional bullshit.

Anything over 15% of your net worth is risky. However if you think you need 8 crores for your retirement, and you already have Rs. 10 crores in other assets, then the risk is less. So for a person with Rs. 10 crores in other assets and having Rs. 40 crores in esop is not so bad than for an employee with Rs. 2 crores in other assets and Rs. 22 crores in Esop shares. The second guy/gal has to reallocate more aggressively than the first guy. First guy should do a sip with the dividends and about Rs. 2L per month from the esop shares…

 

 

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