More often than not, tech companies are very enthusiastic about creating an ESOP pool and designing ESOP plans. Fancy plans are drafted but not implemented or if implemented, don’t serve the purpose and pose administrative challenges. The result - ESOPs become more of a burden! Traditionally, ESOPS made most sense for listed companies in a “liquid market”. Startups with ambitions of going public or aspiring for star exits adopt ESOP plans for all the right reasons... but over the years ESOPS seem to lose their shine! Here are a few thoughts I believe should be applied before adopting an ESOP Plan and announcing one!
The question of whether “to give or not give” needs thought. As management, it makes sense to think through whether you are truly are committed to living up to this as a compensation tool.
Effective April 1, 2014 the Companies Act 2013, has taken cognizance of ESOPs. Sec 2(37) defines an Employee Stock Option. Further, Rule 12 of The Companies (Share Capital and Debentures) Rules, 2014 brings out specific ESOP provisions to be followed even by unlisted companies whether private or public. Effective April 2014, unlisted companies that wish to grant employee stock options need to follow the provisions of these rules before issuing Stock options. ESOPS therefore needs some thinking through now...Key changes after April 2014:
I am sure there are many more such questions and many schools of thought around this but it would be a useful exercise if the philosophy of stock options, grade of employees you wish to apply this to, objective of rewarding employees are well though through while devising ESOP plans so that such plans can serve their true purpose and then the questions of “giving or not giving” moves to more a more pertinent question of” how most effectively to give!”
It is inspiring to read about companies that believe in sharing a piece of their value and believe the contribution of each employee towards building their organisation from scratch.
(Disclaimer: Views expressed in this article are personal views of the author and purely informative in nature)Image by Irene Florez
Arranged with witty office banter, and the weekly team lunches, Lightbox truly reflected what they were here for; to support innovation that enriches lives. With a culture that promotes thinking, questioning and collaborating, their space and their people weren’t here only to be the next biggest VC, there was heart behind it.
The advice to entrepreneurs is to experiment, fail, learn and repeat. Try things at a small scale and at a low cost, and quickly assess if they work or not and then take a call on what is worth scaling up. The experiments should either stop or continue based on consumer feedback.