Illustration: Rahul Awasthi
Illustration: Rahul Awasthi

Some of India’s leading consumer internet startups are offering additional stock options to employees in a bid to retain them following broad pay cuts due to economic upheaval triggered by Covid-19.

Online food delivery major Zomato, hospitality chain Oyo Hotels & Homes, grocery delivery company Grofers and mobility venture Bounce, are among those bulking up employee stock option pools, after initiating salary reductions — mandatory or voluntary — across the board, company executives told ET.

In April, Zomato initiated a voluntary salary reduction programme, which also offers affected employees’ additional stock in lieu of the cash cut from their pay cheques.

An estimated 2,700 employees, across levels, have taken voluntary salary cuts, and were then issued stock. Sources said the Gurgaon-based company was already holding unallocated stock in its Esops pool.

Grants may have Favourable Terms

In most other cases, the additional Esops are coming from the founders’ stakes in their companies, the people cited above said. SoftBank-backed online grocery delivery company Grofers is increasing the size of its Esop pool by an additional $25 million, as part of a new financing round that could see it raise $60-70 million.

“Companies will be thinking of the principle of what level to compensate — can it be 1:1, or can it be higher? The grants may also have more favourable terms than the existing stock plans they have — lower priced and shorter vesting periods and because it’s against liquid cash, there is an effort to make it as attractive as possible,” a top executive of a leading startup, told ET.

While Bounce which had announced salary deductions, ranging between 20% and 60% had said that while it is also looking at paying due salary as soon as the macroeconomic indicators return to normalcy, in lieu of the interim salary cut, employees will get Esops.

“This makes a lot of sense. Any company undertaking pay cuts, faces the risk of losing employees, and this (issuing additional stock) is one of the good levers to retain talent,” said Harshil Mathur, chief executive of fin-tech company Razorpay, which has a robust Esop programme.

When contacted by ET, Zomato and Oyo declined to comment, while Grofers and Bounce did not respond.

The Esop pools of companies such as Paytm, Zomato and Oyo range between 2.6% and 5.5% of their overall shareholding, according to data collated by Tracxn.

Part of appraisal process

Last month, Paytm, India’s most highly-valued unicorn, said it will offer Rs 250 crore in Esops to high-performing employees and new hires.

“In this financial year, we will follow an Esop-led appraisal process and have budgeted Rs 250 crore for it. It is a gesture to appreciate our fellow team members who have worked hard and achieved the set milestones,” a company spokesperson said.

“This will move along even more in the next 2-3 quarters, because this is an issue no one has an easy solution to. India is still a relatively young ecosystem — for startups and VCs — capital or cap table restructuring is not something we have seen much of here,” Manish Kheterpal, managing partner at WaterBridge Ventures.

India’s startup ecosystem, particularly its consumer-facing, services-focused technology companies, has been in dire straits after the government enforced a mandatory lockdown to combat the pandemic. A recent survey showed that services collapsed in April, triggering a sharp spike in layoffs and reinforcing fears of a deep recession.

The IHS Markit Services Purchasing Managers’ Index plunged to 5.4 in April from 49.3 in March, an unprecedented contraction since the survey first began over 14 years ago




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