After raising fresh investment of $1.4 billion from Tencent, eBay and Microsoft early this week, Flipkart plans to issue differential stock options to all eligible employees. The move is aimed to protect employees from a drop in its share price.
In an email to employees who are part of employee stock option plan (ESOP) programmes across the company, including affiliates like Myntra and PhonePe, Binny Bansal, group CEO on Tuesday said that differential grant was being made so that the total dollar value of options allotted to an employee remains unchanged.
“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 start-ups that have offered such grants, the norm has been to limit it to topmost employees,” Bansal wrote.
In Flipkart’s case, however, the grant would be offered to all employees who were allotted stock options at higher than the price established in the latest funding round, Bansal wrote. Post the latest round of funding, Flipkart, is valued at $11.6 billion, down from the $15.2 billion valuation struck in July 2015.
Explaining the rationale behind the move, Bansal wrote in the email that the drop in valuation translates to a lower stock price, and would have essentially meant a notional loss for employees who were allotted ESOPs at higher prices.
“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,” he said.
While tech companies such as Infosys was one of the first one to issue stock options to employees, in recent years, Indian start-ups like Snapdeal, Housing.com, amongst others have offered ESOPs as a way to curb attrition.
Interestingly, last year in July, Infosys brought back the ESOP scheme 13 years after discontinuing it, to curb a high attrition level. However, the fate of ESOPs hinges on whether the company is able to list publicly, or if it buys back the shares.
