Bengaluru: Online marketplace Flipkart has handed out employee stock option plans (ESOPs) to over a third of its workforce, a significant milestone for the poster boy of Indian e-commerce.
In an interview, Flipkart chief people officer and strategy head Nitin Seth said the offer of ESOPs to more employees was part of a strategy to retain what the company sees as “critical talent".
“The most significant thing that we’ve done is that we’ve offered one-third of our employees stock options this time—which is a very, very significant increase from previous years. Including promotions, almost 40% of our employees have got stock options—which is an industry-defining move that we’ve done," said Seth, former country head at financial services firm Fidelity International.
“The changes we’ve done is, we’ve made the stock option programme even more pervasive than it used to be and we are experimenting with our senior employees where we are paying out some of the variable (payment) as stock," added Seth.
An ESOP is a benefit plan intended to encourage employees to acquire shares or ownership in the company. Start-up employees typically get lower salaries than those at large companies, but are attracted to these ventures partly because of the possibility of profiting handsomely through stock options if there’s an acquisition or an initial public offering (IPO).
For instance, the IPO of India’s second largest software exporter, Infosys Ltd, in 1993 resulted in more than 500 employees becoming millionaires overnight.
The number of executives and employees who will be entitled to ESOPs has gone up significantly—about 35-40% of Flipkart’s 10,000-odd white collar employees will get stock options from this year, compared with last year’s 10-20%.
“It’s pretty fair to say that 35-40% of the organization is what we see as our critical talent to whom we’re offering stock of the company. The number has gone up significantly—in the past years, the number was 10-20%. This is the highest in the history of the organization in terms of the stock that we’ve offered," said Seth.
On Monday, Mint reported that Flipkart modified its variable pay structure for middle and senior managers to cut costs and tie their pay to the online marketplace’s performance and valuation.
Flipkart has cut the cash component of variable pay by up to 40%, depending on the seniority of executives, and replaced it with stock.
Employee costs are one of the largest areas of expense for e-commerce companies after marketing and discounts. By replacing cash with stock, Flipkart is cutting part of its spending on salaries. The company is also hoping that the move will push employees to work harder.
Other rival Indian start-ups also have ESOP plans in place for employees, but none arguably on the scale of Flipkart.
A Snapdeal spokeswoman said that the e-commerce company currently has a “robust ESOP plan" which is benchmarked with peers and top performers are regularly rewarded with ESOPs, but declined to share further details.