After a massive $1.4 Bn fundraise earlier this month from Tencent, eBay, and Microsoft, homegrown ecommerce giant Flipkart will now reportedly issue differential stock options to its eligible employees.
The move on Flipkart’s part comes as an attempt to protect its employees from the price drop in share value, post the funding round.
An email was sent by Flipkart Group’s CEO Binny Bansal, to all the employees who are part of employee stock option plan (ESOP) programmes across the company, including affiliates like Myntra and PhonePe. It stated that the company was considering the issue of a differential grant so that the total dollar value of shares allotted to an employee remain unchanged.
Bansal, in his email wrote, “To be sure, it is not common practice to shield employees from a funding round that values a company lower than it was valued at earlier. That privilege is usually reserved for investors whose holdings are ratcheted up in case of a drop in the stock’s price, so that their equity stake in the company stays at a steady level. Of the few startups that have offered such grants, the norm has been to limit it to topmost employees.”
However, Flipkart is extending this options to all its employees who were allotted stock options at higher than the price established in the latest funding round, as per the above mentioned report.
As per a company statement, the latest investment was done at a post-transaction valuation of $11.6 Bn. This number is significantly lower than Flipkart’s valuation in July 2015, $15.2 Bn, when it previously raised funds.
The email further said that, “As an organisation, Flipkart takes immense pride in being the employer of choice for thousands of professionals—a vaulted status that only comes with a deep, company-wide, sense of transparency and fairness. If Flipkart does well, so should you.”
An Employee Stock Option Plan (ESOP) is a type of employee benefit plan that allows employees to buy shares in the company – offering them a sense of ownership towards the company. The employees have to wait for a certain time duration – also known as the vesting period, before they can buy the specified amount of shares at a discounted price, aka exercise price (which is usually lower than the market price).
These stocks remain in the employee trust fund until the employees wish to liquidate them, and the trust pays them the equivalent cash amount generated in the share monetisation process.
In 2015, Flipkart sold a marginal stake, worth $27 Mn-$30 Mn (INR 180 Cr-INR 200 Cr), in its employee trust fund to high-net-worth individuals, in a bid to allow employees to cash out their shares pre-IPO. In November 2016, reports surfaced that Flipkart had issued ESOPs to over a third of its workforce. Earlier this week, it was also reported that Sachin Bansal and Binny Bansal co-founders of Flipkart lost their billionaire status, post the latest fundraise. Both the co-founders now have a net worth of $650 Mn-$750 Mn each.
The trend to issue ESOPs to retain top talent in the company is gaining attention in the Indian startup ecosystem. In 2015, Snapdeal expanded the proportion of its equity to be distributed from 6% to 10%, in a bid to gain employee loyalty. In the same vein, Housing.com ex-CEO Rahul Yadav allotted all of his personal shares – said to be worth between $23 Mn and $31 Mn( INR 150 Cr and INR 200 Cr) – to all of the 2,251 Housing employees. In March 2017, Paytm’s employees made massive returns by selling shares worth $15.3 Mn (INR 100 Cr) to both internal and external buyers in Paytm’s parent company One97 Communications.