Flipkart’s ESOPS fable has a bitter twist for ex-staff

BENGALURU: Walmart Inc.’s plan to buy back roughly $500 million worth of employee stock options following its $16 billion majority purchase of Flipkart has left former employees of India’s largest online retailer feeling that they have been treated unfairly.

While current Flipkart employees will be allowed to encash their holdings fully over the next two years, former employees can only cash out 30% of their vested options and have to hold on to the rest for an undefined period, according to Walmart’s plan.

A dozen former employees

spoke to said they were considering ways in which they can get Flipkart to pay them. For former employees, it’s particularly shocking because Flipkart had been the fairest employer among all Indian start-ups in terms of offering stock options.

“This is a terrible deal, especially for people who had been at the company for many years. If you played an important part in

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building Flipkart, right now you’ll feel like you’ve been cheated. There’s no communication from Flipkart on what happens to the 70%,” said a former employee who had worked at Flipkart for more than five years.

To be sure, the ESOP pay-out by Walmart will still be the biggest-ever in the Indian start-up world and is expected to turn a few hundred Flipkart employees into crorepatis. Over the past six years, there have been at least five other buybacks at Flipkart, including a $100 million repurchase last year.

But given that Flipkart, including its unit Myntra, has employed tens of thousands of people over the past decade, hundreds of former employees will be left with significant stock in the company with no visibility on when it will turn into cash.

“It seems unfair to treat current and former employees differently—if your options have vested, you should ideally be treated like any other shareholder,” said Subramanya S V, founder of fintech startup Fisdom and a former MD at venture capital firm Bessemer Venture Partners India.

The differential treatment has reignited the debate among startup employees, investors and entrepreneurs about how employee stock option plans, or ESOPS, should be treated.

FK YET TO REACH OUT TO SOME EXEMPLOYEES

BENGALURU: A large number of ex-employees of Flipkart, India’s most valuable startup which was acquired by Walmart last week, are yet to receive a formal communication from the retailer on the status of their employee stock ownership plans, six ex-employees said. On Sunday, Flipkart sent out a short missive to roughly 300 ex-staff, informing them about the share repurchase plan, saying it “was unmatched among private companies in India”. FK did not immediately respond to an email seeking comment. NEWDELHI: Flipkart employees will be able to cash their vested stock options at $125-129 per share once Walmart Inc. completes its $16-billion acquisition, India’s largest online retailer wrote to its employees.

Employees can liquidate their stock options in three instalments—half on the date of closing of the Walmart deal; 25% a year later, and the rest two years after the first liquidation.

“The liquidation of vested Employees Stock Options (Esops) would be at a price reflective of the transaction price, which would be in the range of $125 to $129 per option,” Flipkart emailed its employees on 11 May. Mint has seen a copy of the letter.

The exact price point will be declared on the closure of the transaction between Flipkart and Walmart and then, employees will be able to liquidate their vested Esops in instalments.

At the rate of $125 per share, an employee with 10,000 shares should make ₹8 crore before tax. However, Flipkart cautioned employees that the repurchase events are “contingent on, and subsequent to, the closure of the proposed transaction with Walmart and approval of board of directors”. Flipkart is expecting the closure of transaction and regulatory approvals over the next 60 to 90 days.

In its email, Flipkart also said that “this is in line with our overall rewards philosophy of wealth creation for all our employees who have contributed to the journey with Flipkart this far.”

EMPLOYEES CAN LIQUIDATE THEIR STOCK OPTIONS IN THREE INSTALMENTS