Flipkart’s ESOPs fable has a bitter twist for ex employees
As part of the Flipkart-Walmart deal, Flipkart employees will be allowed to encash ESOPs fully over the next 2 years, but former employees can cash out only 30% of their shares and have to hold on to the rest for an undisclosed period
Bengaluru: Walmart Inc.’s plan to buy back roughly $500 million worth of employee stock options, or ESOPs, following its $16 billion majority purchase of Flipkart has left former employees of India’s largest online retailer feeling that they have been treated unfairly.
While current Flipkart employees will be allowed to encash their holdings fully over the next two years, former employees can only cash out 30% of their vested options and have to hold on to the rest for an undefined period, according to Walmart’s plan.
A dozen former employees Mint spoke to said they were considering ways in which they can get Flipkart to pay them. For former employees, it’s particularly shocking because Flipkart had been the fairest employer among all Indian start-ups in terms of offering ESOPs.
“This is a terrible deal, especially for people who had been at the company for many years. If you played an important part in building Flipkart, right now you’ll feel like you’ve been cheated. There’s no communication from Flipkart on what happens to the 70%,” said a former employee who had worked at Flipkart for more than five years.
To be sure, the ESOP payout by Walmart will still be the biggest-ever in the Indian start-up world and is expected to turn a few hundred Flipkart employees into crorepatis. Over the past six years, there have been at least five other buybacks at Flipkart, including a $100 million repurchase last year.
But given that Flipkart, including its unit Myntra, has employed tens of thousands of people over the past decade, hundreds of former employees will be left with significant stock in the company with no visibility on when it will turn into cash.
“It seems unfair to treat current and former employees differently—if your options have vested, you should ideally be treated like any other shareholder,” said Subramanya S.V., founder of fintech start-up Fisdom and a former managing director at venture capital firm Bessemer Venture Partners India.
Flipkart and Walmart did not respond to emails asking for comments.
The differential treatment has reignited the debate among start-up employees, investors and entrepreneurs about how ESOPs should be treated. People often take pay cuts and significant career risks when they join a start-up. Working at a start-up was seen by most middle-class and upper-class Indians as an unnecessary risk and a hopeless endeavour. The success of companies such as Flipkart, Paytm and Ola as well as the extensive media coverage of start-ups have helped change that perception to an extent.
But as far as ESOPs go, the start-up ecosystem as a whole is yet to prove it can be trusted.
The sale of ticketing platform RedBus to Naspers in 2013 led to anger and disappointment among many RedBus employees because of meagre payouts. Tales of employees not getting the stock that was promised to them are still not uncommon.
But some recent exits have seen both current and former employees receive handsome payouts.
At TaxiForSure and Freecharge, both current and former employees were allowed to cash out their vested stocks in full, former executives at these companies said. Taxi-hailing app TaxiForSure was sold to Ola for $200 million in March 2015 while payments company Freecharge was bought by online marketplace Snapdeal for $400 million in April 2015.
Anirban Sen contributed to this story.
Editor's Picks »
- Same-store sales growth trips at Future Retail
- Cipla Q4 FY18 results no reason to reverse stock underperformance
- Dr Reddy’s Q4: It’s a wait and watch, share price spike notwithstanding
- What SBI Q4 results say about the Indian economy and the bank
- Patanjali’s slowing growth does not mean that Colgate’s is accelerating