In order to tackle attrition among its employees base, online eCommerce marketplace Flipkart has sold a marginal stake in its employee trust fund to some high net worth individuals (HNIs) for around Rs 180-240 crore. Such a move was aimed at talent retention by the company. This initiatives gives employees who are holding stock options, a way to monetize them, as per an ET report. Normally, they wouldn’t be able to do so in absence of a listing.
In an emailed statement, Flipkart spokesperson said that, “At Flipkart, we believe the reason for our remarkable growth has been our people who have demonstrated immense ownership and have consistently gone way beyond the call of duty. The employee trust is a structure to facilitate employee liquidity across all levels depending on the amount of vested options. This is a repeatable structure and we do intend to use it as we go along at least on an annual basis.”
Employee stock ownership plan, or ESOP is an employee program that provides a company’s workforce with an ownership (stock options) interest in the company. In an ESOP program, companies provide their employees with stock ownership, often at no up-front cost to the employees. ESOP shares however, are a part of employees’ remuneration for work performed. It can range from 30% to as much as 70% of compensation.
For eCommerce firms, selling shares of a trust fund gives employees a chance to liquidate their shares and helps them to unlock value of their ESOPs. The $17 billion Indian e-commerce industry is expected to grow to $50 billion by 2020. It is expected to create a total of more than 50,000 jobs in the next few years.
Also Read: ESOPs: What, Why and More
A lot of companies have been in the talks for giving stock options (ESOPs) to their employees. Firms like Tastykhana, RedBus, Snapdeal, Shopclues, and Infibeam are among eCommerce notables, that claim they can make their low level workers millionaires. ILFS Group has the ILFS Employees Trust that owns a 13% stake in the company. Larsen & Toubro Ltd has an employee trust fund that owns a 17% stake in the company.
When RedBus was acquired by Ibibo in June 2014 for a valuation of Rs. 600 crore, many RedBus employees turned millionaire overnight. Tastykhana CEO Sachin Bharadwaj also posted an interesting tweet when his startup was sold to Foodpanda. The CEO said that is he happy to add 6 new employee millionaires to the startup ecosystem.
Flipkart started providing ESOPs in 2009, the same year when the company raised its first round of funding of $1 million (over Rs 6 crore) from Accel Partners.