Flipkart delivers $100m Esops to a chosen few
Flipkart has disbursed a fresh set of employee stock ownership plan (Esops) to its senior and middle-level staff, multiple people privy to the development said, as part of the ecommerce major’s efforts to retain key talent a year into Walmart buying a majority stake in the Bengaluru-based company.
The overall stock grants are expected to be in the range of $100 million and were issued to select employees across Flipkart and Myntra-Jabong, these people in the know told.
The Esop distribution took place as part of the company’s annual performance assessment programme which concluded last month. Employees who have been allotted these new shares at a price of $125-130 per unit, will see 25% of their stock vest after a year, following which monthly vesting will continue for three years.
The vesting period is the time between allotment of shares in an Esop and when the shares are fully owned by an employee.
“The amount of Esops which has been granted is different for different employees,” said one of persons.
Shares worth annual salary
"The grants have been given out to people who have been either promoted or are high performers. The company is also using it selectively as a retention tool for critical talent amid all the reorganisation that has come about in the past year,” said the person.
While some of the staff have been given shares worth their full-year salary, others have received shares equivalent to their six-month remuneration.
Responding to an emailed query by ET, a Flipkart spokesperson said, “Stock options are a part of our culture to reward ownership, beyond this we can’t share any details or specifics.”
The new Esop allocation comes at a time when the Indian web retailer faces imminent competition from the likes of Reliance Industries, which is gearing up to launch its ecommerce venture later this year. Also, other well-funded startups have been poaching from Flipkart. “They need to hold on to key people which is why the company has taken this step out of turn. There are also talks of an IPO for Flipkart being planned for 2021 which gives them a possible liquidity event to look forward to besides a share buyback by the parent company which may come through in the future,” said another source.
This is the second such issuance of stocks after Walmart came on board in May 2018, people in the know said, with the previous grants having been disbursed last November. “The number of employees who received Esops in November were far fewer as it was largely among the top management,” sources said.
Last year, Walmart, which owns 77% stake in the Indian etailer, had purchased nearly $800 million worth of shares from Flipkart’s Esop pool — which is estimated at $1.5 billion — giving liquidity to many employees, some of whom went on to become millionaires. This was also the largest employee share buyback programme for the Indian startup ecosystem which has been typically starved of big exits for investors and employees alike. At the time, Flipkart group’s current employees were allowed to liquidate 50% of their vested Esops in the first year and cash out 25% each in the second and third.
Flipkart’s stock options are granted over a four-year period, with employees vesting them every month after the one-year threshold. While Esops are used by startups as a way to hire and retain talent, the options to cash out are limited for employees, with less than 5% of Esop wealth created being liquidated through private sale of these stocks, according to estimates from executive search firms Heidrick & Struggles and Longhouse Consulting.
“Today, Flipkart is competing with the likes of Swiggy and Oyo, which are looking for talent which has seen businesses scale. Therefore, there is an increasing need for Flipkart to retain employeessaid Kamal Karanth, cofounder, Xpheno, a specialist staffing company.