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No more a fable, ESOPs reach rank and file of startups in India

By Rica Bhattacharyya and Sneha Shah, ETTech

Employee stock ownership plans (ESOPs), which were once used as a tool to tie senior management to business objectives and make their pay competitive, is now being given out to employees across the board by some startups — especially the ones in sectors that saw their business and revenue hit new benchmarks despite the pandemic.

A handful of startups — including PhonePe, Licious, ShareChat, and Wakefit — have recently rewarded their employees across the board — including back-office, administrative, production, and on-ground sales staff — with ESOPs as a gesture of sharing their success to keep people motivated and retain talent.

Liquidity events or cash-out opportunities that have created value for ESOPs in real cash terms over the last couple of years are prompting an increasing number of startups to use it as a tool to attract and retain talent, said experts.

Online payment company PhonePe recently launched a $200 million (Rs 1,460 crore) plan to allot stock options to all its 2,200 employees, enabling everyone in the organization to benefit from its success in a year when digital payments have grown exponentially.

“Every single PhonePe employee, whether they be software engineers, product managers, customer experience agents or on-ground sales agents, have contributed to creating value for the organization, so it is only right that every employee should gain from it,” said Manmeet Sandhu, PhonePe’s chief people officer.

“Our compensation system aligns with this approach by removing variable pay based on individual performance for most roles. Instead, we use ESOPs to create the incentive for everyone to be invested in long-term organizational growth. By having ESOPs at a minimum of $5,000 for all levels, we enable every employee in the organization to participate in the wealth generation opportunity they have helped create,” she said.

Bengaluru-based meat and seafood company Licious in January announced its maiden ESOP plan that will benefit more than 800 employees across functions including processing-center staff, delivery boys, and corporate employees.

“Our meat technicians, meat processors, and delivery heroes are the heartbeat of this brand and deserve to benefit from the growth. The ESOP grant to our blue-collar force is a progressive and positive step in this direction,” co-founder Abhay Hanjura said.

Wakefit.co has also awarded ESOPs to all its employees, including back-office production staff. “Early employees at Wakefit played an extremely important role in our growth till now. They cut across functions and seniority levels, from highly experienced people all the way to fresh graduates. So, we decided that it is fair to reward these committed team members irrespective of function and seniority,” said Chaitanya Ramalingegowda, its co-founder.

In September, Indian social media venture ShareChat had announced plans to extend ESOPs to every employee on its payroll, including administrative staff.

Experts said ESOPs as a tool to attract employees have been behind the curve in India compared to the US, where most startups offer it across the board. In India, it is mostly offered to senior management and in limited cases to select people in middle management. However, ESOPs have gained currency in recent times due to an increase in the number of sales and opportunities to monetize.

“With a larger number of exits and sales starting to happen, there is a greater opportunity for employees to encash and make money. The real value of ESOP is being understood in India now,” said Ankur Pahwa, partner, and national leader, e-commerce and consumer internet, at EY India. “It is not only a great tool for companies to attract talent but also a great motivation tool to retain people,” he added.

“We saw a surge in the number of startups offering ESOPs to employees in 2020; this was done in many cases to conserve cash while keeping employees motivated to keep performing. There are examples of early-stage, growth-stage, and even unicorn startups leveraging ESOPs for this purpose,” said Sanjay Jha, co-founder of MyStartupEquity, LetsVenture’s cap table & ESOP management product.

Arvind Usretay, director for talents and rewards at Willis Towers Watson, said sometimes startup organizations who may be looking to conserve cash, may use long-term incentives (LTIs) such as ESOPs as a pay component to increase the overall pay. “In such cases, we may observe that LTI may be granted to all employees irrespective of career levels,” he said.


Published in ETTech on 4th Feb 2021 | Source: https://bit.ly/2N6mZfn

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