Flipkart board allows ESOP buyback worth $100 Mn from current staff

Amidst the regulatory pressure from the government, increasing market competition with Reliance Industries entering into e-commerce, newer kinds of e-comm models emerging, reorganisation due to senior management exits, and the necessity for Flipkart to grow in Walmart’s books, the Kalyan Krishnamurthy led company has been using ESOPs to retain its key employees to ensure stability in management that allows healthy growth.

In the past four months itself, the company has taken two actions around its stock option plan. The first was in May, where options worth $100 million were distributed among its top-performing senior to mid-management employees. Depending on the performance and the nature of role these employees were playing in the company, ESOPs worth their full-year or half-year salaries were given to these employees.

However, since disbursal of ESOPs by itself doesn’t completely ensure the retainment of an employee, there needs to be an opportunity for them to encash these ESOPs too. Moreover, the company just received the board approval to buy back 10% of the vested stock of the current employees, Krishnamurthy had communicated via e-mail two days ago.

This roughly translates to a buyback worth about $100 million. These ESOPs had been issued to employees at the rate of $125-130 per option, reports Mint.

Steps like these make sure that employees remain assured that the rewards they receive for their work is not only on paper, but the gains can be made in real-time. Further, since the monetary gain in this encashment event shall only benefit current employees, it becomes all the more motivation for the employees to stay and make more substantial gains as a part of the team.

Flipkart ESOP plan has always had differing encashment rates for current and former employees. The last time employees had gotten a chance to make money on the ESOPs was during Walmart acquisition of Flipkart, where the US retailer bought ESOPs worth $800 million. At that time, current employees were allowed to encash 50% of their vested stock in the first year (and the rest 25% each in second and third year), whereas the allowance was 30% for former employees.

A $100 million ESOP buyback took place in October 2017 as well where current employees encashed 25% of the vested stock and former employees 10%.

However, a major problem in the Flipkart ESOP plan is the rigorous time boundation investing in the stock. Once issued, the options start vesting every month after one year of wait. This means the employees given stock options in May will not be able to encash their stocks in the latest buyback event.

Only active employees as on 18 August 2019 can sell 10% of their vested stock to Flipkart.