Welcome to the latest edition of Fables of ESOPs. We hope you had a great start to 2023. There were a few interesting updates in the world of ESOPs in January including arguably the largest ESOP liquidity event by an Indian startup that was announced by Flipkart as they execute a $700 million liquidity for ESOP holders and shareholders. Let’s dive in!
As mentioned in the previous edition, Flipkart is all set to execute a record $700 million worth payout for its employees holding stock options as a one-time adjustment arising due to separation of PhonePe entity. PhonePe executives Sameer Nigam and Rahul Chari are expected to cashout $20-$25 million each as part of their liquidation of existing stock options in Flipkart. This secondary sale is largely financed by Walmart.
Porter announced an ESOP Buyback program worth INR 50CR to its current and former employees. The buyback is at a 50% premium to the previous liquidation value. The previous liquidity program was announced in 2021 worth $5 million.
Edtech startup Sunstone recently announced that it has initiated an ESOP buyback plan worth INR 18 Cr ($2.2 Mn) for 20 of its former and existing employees. The development comes six months after Sunstone raised $35 Mn in a Series C funding round led by Westbridge Capital.
Delhivery in a regulatory filing said that its stakeholder relationship committee has approved the allotment of 1,70,676 shares against the exercise of vested ESOPs granted under the company’s employee stock options pool (ESOP) plans 2012 and 2020.
In other news, Paytm plans to make changes to its ESOP Plan was struck down by over two thirds of its institutional shareholders. Most of these resolutions relate to amending and ratifying the pre-listing ESOP scheme as well as including employees from subsidiaries and group companies. The moot point seems to be the deep discount nature of the stock options issued at INR 9 and the proxy firm advised to vote against the resolution.
The government's budget in 2020 had also made it easier for companies to offer ESOPs as a compensation tool, by easing the taxation of ESOPs. However, the current income tax laws concerning the taxation of ESOPs at the time of allotment or transfer of shares from non-eligible companies can create difficulties for employees, who must pay both the exercise price and TDS at the allotment stage without immediate monetization of gains. There was a widespread hope amongst the startup ecosystem stakeholders that the government will relax the taxation rules on ESOPs in this budget, however that was not the case.
Over the past few years, Employee Stock Options (ESOPs) have become a powerful compensation tool for companies, especially startups, to achieve multiple objectives. From motivating employees to attracting talent, improving employee performance, and aligning employee interests with the company, ESOPs have been an effective way to retain and reward employees.
If you wish to set up or revisit your ESOP program to attract and retain talent? We can help you to create an ESOP Policy that your employees would love. Do reachout to us.