Flipkart of fers more ESOPs to make up for falling value

Flipkart will issue differential stock options to eligible employees to offset the drop in value of their shareholding in the company.

Flipkart recently raised $1.4 billion from Tencent, eBay and Microsoft at a valuation 23 per cent lower than its peak.

Companies issue differential stocks to investors to protect the value of their investments. Founders suffer the most in such situations with their shareholding being diluted excessively.

Flipkart founders Sachin Bansal and Binny Bansal held 7.5 per cent stake each when the company raised $700 million at $15.2-billion valuation in July 2015.

The grant of additional shares was to ensure the dollar value of stocks held by employees of Flipkart, Myntra and PhonePe would remain the same as when the company was valued at $15.2 billion, Binny Bansal, group chief executive officer of Flipkart, communicated to staff in an email on Tuesday.

“If Flipkart does well, so should you,” Bansal wrote to employees who are part of the employee stock ownership plan (ESOP).

Bringing parity with its $15.2 billion valuation is also significant to retaining talent as the Indian e-commerce sector sees intense competition from Alibaba-backed Paytm Mall and an aggressive Amazon.

In an interview with Business Standard in November, Nitin Seth, chief people officer at Flipkart, had said 40 per cent of all eligible employees had been allotted ESOPs, or a few hundred employees out of its 8,500-strong workforce. Over the past year, Flipkart stepped up its ESOP programme as it tried to cut costs by reducing salaries of senior staff.

Several employees had challenged the decision to cut pay in favour of stocks because the value of Flipkart was increasingly being marked down by investors, the most critical of whom valued the company at $5.38 billion, two-thirds lower than its peak value of $15.2 billion.