All You Need To Know About ESOPs
Now that all the chatter about Freshworks going public is starting to die down a little, a lot of questions are starting to arise, a whole lot of them revolving around the idea of ESOPs, what exactly are they, how does it benefit the employees and more.
Here’s Samar & Movin Jain, Director-Product, PhonePe, breaking down the concept of ESOPs for all of us with the right questions about ESOPs.
Starting from Movin’s professional journey, After a fun couple of years of being batchmates in IIT Delhi with Samar, Movin went on to complete his MBA from IIM, which later led him to a thriving career in investment banking as a trader.
But pretty soon, he realised that it all looks glamorous only from the outside, pretty dull & boring on the inside. He didn’t feel he was adding value. Came back to India to a thriving Indian startup ecosystem, Joined InMobi, World’s largest independent mobile ad network back then. Had a great experience. Spent 2 years there, Got inspired by the InMobi founders.
The inspiration then led to Galleri5, who worked on it for about 1.5 years. Marketplace place for brands & social media creators. Pivoted their way to success.
Joined Ola as an associate director, product for a year and moved on to Meesho, India’s largest social eCommerce platform, backed by Facebook, Naspers, YCombinator, Sequoia and other marquee investors. Working at Meesho, he was leading one of their product teams and witnessed it to grow from a team of 200 to a team of 1000 people.
LEARNING SO FAR
– How to execute at scale yet make sense of what you do.
– Be Agile & grow fast
– Manage Choas while staying on track.
Currently, working with PhonePe Movin is now exploring the FinTech world at large, while enjoying his extensive experience of being at the intersection of technology to understand consumer behaviour.
Moving on to ESOPs!
What are ESOPs?
ESOPs stands for Employee Stock Option Plan, which in a gist implies the act of compensating employees in proportion to a company’s growth, when the company grows, an employee’s wealth will also grow.
Taking Freshworks reference, the buzz about Freshworks creating 500 millionaires, is the ultimate outcome of a company offering ESOPs and when a company does well.
As a founder, who should you give ESOPs to?
As a founder, my POV is to give wealth & create wealth: Make your employees rich. Now as for other companies, Urban Company & Air Bnb, offers ESOPs to their partner salons & homestays as well, pushing the limits of ESOPs to benefit their collaborators. While there are no set rules in terms of who to offer ESOPs to, I personally see myself adopting this approach.
The gist of the matter is ESOPs are essential for people that are considered the building blocks of a company/ startup and important for the growth of the firm.
How is ESOP structured? How many ESOPs to offer?
This completely depends on the scale & profile you are at a company, if you are at a senior level, your ESOPs should be making you equivalent to your salary or if the company grows 4-5x in proportion to the growth. As for the junior level, ideally, an ESOP should help you make a fraction of your salary otherwise depending on the growth of the company.
What is the Vesting Schedule?
ESOps are supposed to make those employees rich that add long term value to the company. Now if somebody leaves within say 3month of joining, that wouldn’t be the case hence they shouldn’t be benefitting from the ESOPs. This is where a vesting schedule comes into play, which ensures you get a fraction of allocated ESOPs year on year you stay with the company. Typically, companies have a vesting schedule of 25% every year which means every year you get 25% per cent of ESOPs allocated to you.
If you leave before completing a year you do not get the benefit of ESOPs. After completing a year you get the allocated 25% benefit monthly or quarterly rather than yearly, depending on the company policy.
Tune in & listen to the podcast to know more about ESOPs, Strike price & more.
Checkout other episodes here: https://jungleworks.com/podcast/