What is Employee Stock Option Plan?
Deepak Abbot, a former senior VP at Paytm, says in a webinar,
While companies are leveraging ESOPs as a retention tool and growth multiplier, employees benefit from the overall process. To summarise, ESOPs pave the way for employees to:
- Boost personal wealth (through equity ownership)
- Grow professionally (as primary contributors)
- Improve job security and satisfaction
- Actively participate in decision making
As companies grow multi-fold, they understand the value of loyal team members. By offering ESOPs as a reward scheme, companies can retain employees whose performance is stellar and, at the same time, attract those who can be potential assets to the startups.
Examples of ESOP Liquidity:
#1 | IPO
The IPO of IndiaMART in July 2019 resulted in its ESOP-privileged employees earning millions. The company offered 4.89 million shares (at a face value of INR 10 each) on the NSE & BSE, and the issue price of each share was listed at INR 970-973. 10,000 shares were reserved for employees at a discount of INR 97 per share. The stock shot up 40% on the listing, and today the stock is trading above INR 2000 per share. A similar trend was observed when JustDial, QuickHeal, Info Edge, and Matrimony.com went public.
#2 | ESOP BuyBack
Bangalore-based online freight aggregator BlackBuck bought back some ESOP shares from employees. 35 employees sold back their stock options at a price much higher than the FMV. In a public release, its senior HR management mentioned that BlackBuck bought back the shares to restructure its ESOP pool.
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Click here for a blog on the tax outgos of ESOPs!