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In a pioneering move by an Indian ecommerce company, Flipkart has sold a marginal stake, worth $27-30 Mn (INR 180-200 Cr.), in its employee trust fund to high net worth individuals, over the past few weeks.

This move will allow employees to cash out their shares pre-IPO, in order to motivate the employees to stick around, thereby ensuring retention.

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 an email to Inc42, a Flipkart spokesperson said, “At Flipkart, we believe the reason for our remarkable growth has been our people who have demonstrated immense ownership and have consistently gone way beyond the call of duty. Our ESOP plans that covers thousands of employees makes this belief in ownership very real.”

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The spokesperson added, “The employee trust is a structure to facilitate employee liquidity across all levels depending on the amount of vested options. This is a repeatable structure and we do intend to use it as we go along at least on an annual basis.”

Employees Stock Option Plan is an effective way to engage and retain top talent. As the ecommerce war heats up in the country, so has employee poaching. Therefore, it has become imperative for the ecommerce players to make sure they keep their workforce motivated and engaged – offering stock options can be a surefire way to do so.

“An employee ESOP trust is used to transact in company equity to exercise and sale of ESOPs. A company cannot buy equity directly from the market – it would have to involve SEBI buy-back guidelines etc. The Trust issues options to employees. After vesting, the employee exercises the options with the Trust. Once exercised, the Trust can give employees either real equity shares of the company or equivalent cash that the employee generates from this transaction,” explained Anandorup Ghose, director, Executive Compensation and Governance, Aon Hewitt.

“The company uses the trust as a vehicle for this transaction and can be independently guided by Trustees. It also helps avoid buy-back related complications. From an employee perspective, it doesn’t matter either way, the employee just needs to be sure that post exercise, there is a way by which he/she can get liquidity for their options,” he added.

Flipkart has raised over $3.4 Bn in funding from global investors like Tiger Global, DST Global and Hong Kong based Steadview Capital, and is currently valued at about $15.2 Bn.

Earlier this year, Flipkart had claimed that it will generate about $2 Mn direct and indirect jobs in the country in 2015, as opposed to the 500,000 jobs it created in 2014. According to the company, nearly 50-60% of employment will be created in tier II & III cities. The company said in a statement that cities like Jaipur and Baroda have already become the ancillary industry hubs, (cataloging and packaging) and they will continue to generate more opportunities in the future.

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