The trend of ESOP buyback perhaps started in 2018 when Flipkart announced a 100 per cent buyback option of vested ESOPs. Following that many startups including Zerodha, Unacademy, Razorpay, CarDekho, BharatPe, OYO, Byju’s, and more have announced ESOP liquidity offers for employees.
ESOPs in India and globally have been used by businesses to encourage employees to buy shares and own a part of the company.(Representational image)
Days after Swiggy and online reselling app Meesho announced an ESOP buyback option to reward employees’ contribution in helping the business survive the past few months of Covid, the online portal to sell used cars Cars24 has now followed suit. The five-year-old startup backed by Bharti Airtel scion Shravin Mittal’s investment firm Unbound, Cars24 has offered buyback up to 100 per cent ESOPs, granted against salary deduction, worth Rs 35 crores from employees. This comes seven months after the company had offered fully vested ESOP to their employees equal to the salary deduction they chose voluntarily.
“Due to Covid-19, startups have realised that one way to keep the high performing employees interested and engaged is to ensure that there is sharing of the wealth with such employees. So those who have vested shares have been given an option to participate in the buyback process,” Souvik Ganguly, Managing Partner, Acuity Law told Financial Express Online.
Cars24 said that it is offering 3.3X more value of employees’ contribution during voluntary salary cuts. The new offer will allow employees get the “bonus and extra liquidity” said Vikram Chopra, CEO and Co-Founder, CARS24 in the post-pandemic Diwali season. Employees also have the option to cash out 30 per cent of vested stocks issued prior as well, the company said.
ESOPs in India and globally have been used by businesses to encourage employees to buy shares and own a part of the company while aligning their performance and hard work to the same. The trend of ESOPs buyback perhaps started in 2018 when Flipkart announced a 100 per cent buyback option of vested ESOPs. Following that many startups including Zerodha, Unacademy, Razorpay, CarDekho, BharatPe, OYO, Byju’s, and more have announced ESOP liquidity offers for employees. Many of them had done so this year itself.
“Various reasons can be attributed to ESOP buyback by startups. Some of them are to ensure employees benefit financially by monetizing part or all of the vested shares by participating through such buyback scheme. Also, employees may have been furloughed due to Covid-19 and such employees may need money. By providing the buyback option such employees get the benefit of holding vested shares,” added Ganguly. Accordingly, in all situations, it is the employees who get benefits from the scheme even if the shares of the startup are not listed or there is no new investor interested to acquire its shares.