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Flipkart offering more ESOPs to shield staff from share price drop

13 April, 2017

Ecommerce major Flipkart is offering differential stock options to all eligible employees to protect them from the drop in its share price following the latest round of investment.

In an email sent to employees, Flipkart Group CEO Binny Bansal said the differential grant was being made so that the total dollar value of options allotted to an employee remains unchanged. This is applicable to all employees to whom employee stock option plans (ESOPs) were allotted across the group, including Myntra and PhonePe.

“Still, to be sure, it is not a 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 the 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 startups that have offered such grants, the norm has been to limit it to topmost employees. 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.

The latest fundraising round ($1.4 billion), the largest in the Indian Internet sector, values Flipkart at $11.6 billion. This is down about a fourth from the $15.2 billion peak valuation when it last raised funding in 2015.
The drop in the valuation translates to a lower stock price resulting in 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,” Binny Bansal wrote in the email.

However, Flipkart did not reveal the number of employees who would receive the differential options.

After weeks of speculations, Flipkart announced the fundraising earlier this week. The latest round was secured from Chinese internet giant Tencent Holdings Ltd, US online retailer eBay and software giant Microsoft Corp. eBay said it is investing $500 million and selling its India business in exchange for a stake in Flipkart. Flipkart didn’t specify the amounts Tencent and Microsoft are investing.

In September last year, Mint reported that nearly 35-40% of Flipkart’s 10,000-odd employees would receive stock options, compared with 10-20% the previous year. The development came after Flipkart reportedly changed its variable pay structure for mid- to senior-level employees wherein 40% of the cash component would be offered as stock options. The change was instituted to reduce spending on salaries, which is one of the largest expenses for the firm.

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Flipkart offering more ESOPs to shield staff from share price drop

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