Employees at ecommerce giant Flipkart will now be getting an incentive in the form of encashment of part of the ESOPs vested with them. The board of directors of the company has given its approval for this and has since been communicated to the employees, according to an Economic Times report.
ESOP stands for employee stock options, where companies allot shares to the employees in appreciation of their contribution at work and periodically permit to sell them, to gain financially. As the company grows and its share value increases, the employees stand to gain. It serves as a tool in the hands of the management to reward better performers at different levels within the organisation and in the long run, there is synergy between the employees and the management as they gain vested interest in the company doing well, being shareholders themselves, however small.
In the case of Flipkart, the present board approval is for those employees holding ESOPs to sell up to 10% of their holding at a price of $125 to $130 (approximately Rs 9,000 to Rs 9300) apiece. On a rough estimate, the company may end up shelling out $100 million in this buyback arrangement. Last year, at the time of the takeover of Flipkart by Walmart, employees were permitted to offload up to 50% of the stock options vested in them. The price fixed then was not very different from the price being offered now, between $125 and $129.
Observers see the move as part of the effort by Flipkart to retain its talent. When companies pass through a consolidation stage and the going gets a little better, you would want to hold on to your key personnel since they become valuable to the organization. Such liquidity in their hands can do the trick.