BENGALURU: Notwithstanding the ‘unfriendly’ mechanism for ESOP (employee stock options) taxation that rules out 99.5 per cent of the start-ups who can avail of the benefit announced in the Union Budget, a host of firms including BYJU’s, CarDekho, Rivigo, Meesho, Paytm, Razorpay and Zerodha had made their employees richer in the past 12 months. Facebook-backed social commerce startup Meesho, for instance, has allowed some of its employees to sell their shares in the company in an employee stock ownership plan (ESOP) buyback, becoming the latest growth-stage firm to give its employees a windfall.
“Out of 60 people who were eligible, 20 exercised the option for a collective $1 million ( `7 crore), where Naspers acquired the shares,” Meesho’s co-founder Sanjeev Barnwal said. Mostly, the people who have cashed out have been employees for 1-4 years, while some optimist people are waiting as they believe it is too early to cash out.
With this, Meesho joined Bengaluru-based cab aggregator Ola, who was among the earliest firms to facilitate exit to ESOP holders in 2018, passed a special resolution to increase its ESOP pool by a further of 153,623 equity shares and allotted shares to Hyundai and Kia at `21,250 per share in November last year. It increased its ESOPs pool by adding `326.45 crore ($46 million). Automotive portal CarDekho also said it is buying back shares, for the second time in a year, worth $3.5 million ( `25 crore), benefitting 100 employees. Payments’ firm Razorpay and B2B e-commerce start-up Moglix have also given employees ESOP exits worth millions of dollars.
While Razorpay’s investors, Ribbit Capital and Sequoia Capital, purchased shares worth $4 million, benefitting 400 employees, Moglix bought back shares worth `5-10 crore from 25 employees. Similarly, online brokerage Zerodha has also expanded their ESOP allocation as it announced a `200 crore ESOP pool last year. Interestingly, the rate of start-ups rewarding employees with share buybacks in the last few months has rarely happened even at unicorns or multi-billion dollar firms till recently.
What are ESOPs?
An ESOP (Employee stock ownership plan) refers to an employee benefit plan which offers employees an ownership interest in the organization. ESOPs has become the norm in companies — by way of paying low cash salary but reward employees with shares of the company offered at a huge discount with reference to its valuations — to retain talent.