Flipkart looking to retain ‘critical talent’ through ESOP

After cutting off chunks of employees in the past few month owing to under performance, Flipkart is now eyeing to retain its essential personnel in the company, as it has reportedly handed out employee stock option plans (ESOPs) to over a third of its work-force.

It was first reported by LiveMint, which revealed that about 30-40% of the employees will be benefitted from stock options this year, which is almost double the last year’s percentage.

Nitin Seth, the Chief People Officer and Strategy Head of Flipkart, said LiveMint in a statement that the company aims to retain ‘critical talent’.

“Including promotions, almost 40% of our employees have got stock options—which is an industry-defining move,” Seth told.

With the slowdown in online retail, the ecommerce company had to cut down expenses and reduce workforce this year. In July 2016, it decided to lay-off 700-1000 underperforming employees, when it faced a downfall in valuation by Morgan Stanley, T. Rowe, and others.

Flipkart had earlier sold a marginal stake, worth $27 Mn-$30 Mn (INR 180 Cr-INR 200 Cr) in 2015, in its employee trust fund to high-net-worth individuals aiming to allow employees to cash out their shares pre-IPO.

Having currently over 50 senior vice-presidents and vice-president-level executives, it hass also recently modified the variable pay structure of for middle and senior managers to cut costs. The cash component is reduced by 40% and the pay structure has been linked with the company’s performance and valuation.

An Employee Stock Option Plan (ESOP) is one employee benefit plan, which allows employees to buy shares in the company – offering them a sense of ownership towards the company. The employees have to wait for a certain time duration – also known as the vesting period, before they can buy the specified amount of shares at a discounted price, aka exercise price (which is usually lower than the market price).

These stocks remain in the employee trust fund until the employees wish to liquidate them, and the trust pays them the equivalent cash amount generated in the share monetisation process.

Also, in January 2016, Binny Bansal replaced Sachin Bansal as new CEO of the company, citing lack of performance as the reason for the move.