Traditionally a wealth creation tool used by startups to retain top talent and offer incentives to senior executives, ESOPs have now become a way for companies to compensate employees in lieu of appraisals and amid salary cuts and furloughs. This comes at a time when toplines and cash runways have taken a hit.
While companies like OYO Rooms, Zomato, and Bounce have offered ESOPs to serve as a salve for pay cuts employees underwent not long ago, fintech giant Paytm’s Rs 250 crore stock option plan based on performance has become the talk of the startup town for its innovativeness in keeping employees galvanised to its success.
The company’s revised ESOP policy rewards employees with shares on the basis of their overall performance and the achievement of annual targets, which they are encouraged to set themselves. Their performance against their targets is evaluated every quarter, and every goal achieved earns the employees a point, which, during the annual appraisal, is used to calculate the number of shares they are eligible for.
Paytm says its main motive behind the policy revision is to give its employees a sense of belonging and connection to the organisation, and that it does not believe that ESOPs should be a guaranteed perk, or an add-on to the salary.
“If our employees have a feeling of ownership, they would be more motivated to align with the company’s vision and give their 100 percent. We strongly believe that ESOPs should be given on the basis of the performance of an individual, and not considered a guaranteed perk or an add-on to the salary. Linking it to the performance of our colleagues helps us getting the best out of them and also sets the benchmark for goal setting,” Rohit Thakur, Paytm’s Chief Human Resources Officer, told YourStory in an interview.
At present, more than 1,000 existing employees of Paytm have Rs 2,800 crore in ESOPs, while close to 150 have earned over Rs 650 crore after vesting.
The fintech giant said it recently gave its oldest and most trusted employee, who manages its pantry and other administrative operations, stock options as a way to show its appreciation for his long-standing service and commitment.
Still, even though ESOPs are a great way to get employees invested in the company’s success and growth, money is a more immediate need during a crisis – more so when there is a lack of job security, forcing startups to take punitive measures to maintain a strong cash position.
In June, Zerodha had announced a buyback of up to Rs 65 crore to provide liquidity to employees who needed funds to weather the pandemic.
But Rohit says Paytm’s employee stock ownership plan is worth more than just cash to its employees. “Our ESOPs are valued much more than just hard cash and offering such wealth during this pandemic has helped us gain the confidence of our colleagues even more.”
Creating a guild of high net worth individuals
Paytm’s ESOPs, so far, have helped create nearly 300 high net worth individuals (HNIs), who have gone on to set up their own companies and VC funds. Some of these companies include Simsim, Flat While Capital, and ClearDekho.
“Our Founder and CEO Vijay Shekhar Sharma had the vision to create over 100 HNIs from his company. That number has now gone over 300 and will continue to go up,” Rohit says.
According to Paytm’s own accounting, over 100 employees have earned more than Rs 10 crore through its ESOPs, and the company aims to drive more such earnings so its employees can engage with the country’s labour and startup ecosystem in their own way.
“We have always championed wealth creation while promoting entrepreneurship in the country and that objective remains unchanged. Many of our employees have become entrepreneurs or angel investors in startups, paying it forward,” he adds.
Beyond Paytm, Vijay Shekhar Sharma engages with the entrepreneurs his company has helped create in a personal capacity — in the form of funds and mentorship — as well as through the company.
“Paytm believes in creating a bond for life with all its colleagues. Our founder takes a personal interest in understanding the entrepreneurship goals of colleagues and has mentored quite a number of them in their journey,” Rohit says.