Malaysian business leaders continue to face the challenge of skills shortages. Despite efforts by the government and private enterprises, many of Malaysia’s employers, particularly those in the technology sector, face difficulty filling vacancies.

Thirty-seven occupations are listed in the latest Critical Occupations List (MyCOL), an annual report commissioned by the Malaysian Government. From managing directors and CEOs to earth-moving operators and truck drivers, the list spans a range of industries where skills shortages are critical.

Given the talent shortages, attracting and retaining top talent is a priority for businesses in Malaysia. Therefore, many are exploring incentives such as employee share option schemes (ESOS) as a way to reward and incentivise employees and engender loyalty.

An ESOS gives employees the option to purchase company shares at a predetermined price, offering a unique opportunity to become shareholders themselves. This connection between employee and company ownership fosters a sense of belonging.

Nora Jasmine Lai, Operations Manager of Employee Plan Services, BoardRoom Group, explains, “The purpose of these programs is to align the company’s goals with employee incentives by allowing the employee to become a part owner of the company and participate in the growth of the business.”

The schemes can be complex and challenging to understand. For example, an ESOS has similarities to an employee share ownership plan (ESOP), though the two vary in terms of the structure, governance, purpose and nature of ownership. However, they broadly aim to achieve the same thing, which is to provide long-term incentives to employees.

Schemes such as ESOS and ESOP provide long-term value for employers by inspiring loyalty among employees. By signing an employee up for the scheme, an employer is essentially saying to them that while they are committed to the growth of the business and contributing to it, they will be rewarded by becoming a shareholder.

As more employees join, the talent within the company grows, strengthening it over time.

In a competitive landscape, no business leader wants to lose good employees. Experienced employees hold institutional knowledge that can be lost when they leave which can disrupt a business. They are also more likely to have established important relationships with customers and other staff. On the other hand, hiring and training new employees takes time and money. High turnover can destabilise employees, damage a business’s reputation and harm customer relationships.

A report from Employee Benefit News found that it can cost a business more than 30% of the employee’s yearly salary to replace them.

Employee retention comes down to many factors. Employees want to feel valued, engaged and an important part of the team. TINYpulse reports that those workers who feel they have control over their careers are more likely to stay than those who don’t. Employees who are dedicated to their workplace achieve more and are 87% less likely to leave their workplace than those who aren’t. Finally, employees who report they are ‘engaged and thriving’ are much less likely to be searching for other jobs than those who are not.

There are many benefits of employee share option schemes. They give employees a sense of ownership and their interests become more aligned with other shareholders. Employee engagement also increases as the schemes motivate them to be more productive and focus on overall business success rather than just their day-to-day responsibilities.

It is not just the company that benefits. “The financial gains from an ESOS are defined by the difference between a company’s stock price and the exercise price of the ESOS, which is fixed when ESOS are granted,” Nora says. “Therefore, the higher the stock price, the larger the financial gain. Employees who are granted an ESOS are incentivised and motivated to act in the company’s interest. This, in turn, improves the investor’s perception of the company’s ability to earn and grow its profits in the future, which increases the demand of the company’s shares and therefore, its share price.”

The higher the share price, the larger the financial gain for the employee. Through ESOS, an employee’s financial growth is directly tied to the company’s stock market performance, serving as a strong motivator for employees to contribute to the company’s success.