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‘Indian startups understand Esops better than SE Asian peers’

By Anuj Suvarna
Saison Capital surveyed 268 startups, with the firm’s portfolio companies making up less than 5% of respondents. (iStockphoto)

Another area where Indian startups outperform Southeast Asian startups when it comes to ESOPs is that more than half of Indian companies give their employees more than a year to exercise their options, whereas only 37 Southeast Asian companies do so. When employees depart, just 6% of Indian firms dissolve all options, compared with 20% of Southeast Asian startups.

Saison surveyed 268 startups, with the firm’s portfolio companies making up less than 5% of respondents.

However, there are some areas in which Indian businesses can improve. One is that ESOP pools remain relatively stagnant because founders fail to do top-ups, given that top-ups and buybacks are the least understood parts of ESOPs among the sample of Indian founders. As much as 59% said they didn’t understand top-ups, while 51% said they didn’t understand buybacks.

Moreover three-quarters (78%) of Indian startups in Series A and beyond have ESOP pools of less than 10% of total company stock, with roughly a fifth (22%) having pools of between 10% and 15%. Only 2 out of 5 Indian businesses have established their “leave policy", or how the company feels about whether employees still earn ESOPs after they depart. When an individual departs the organization, this lack of transparency may cause problems.

Mint 

“With a record-breaking $63 billion invested in Indian startups in 2021, the technology ecosystem of the second-largest population in the world has matured and a new era has begun, one in which opportunities are created at an unprecedented pace. Cash-based compensation is no longer sufficient to attract and retain talent in high-growth technology companies. Yet, we often hear from founders about challenges on how to structure effective ESOPs," said Visa Kannan, partner at Saison Capital.

Culture, ownership and retention are key motivators for founders to implement ESOPs, according to the report.

ESOPs are more likely to be implemented by founders to retain and recruit talent, as well as to create a rewarding culture with a sense of ownership. Only a small percentage (25%) of entrepreneurs see ESOPs as a way to save money on salaries and other benefits. ESOPs can lower upfront pay costs, but are far from a “cheap" solution, especially considering how they diminish stock pools for future fundraising, the report stated.

The majority of Indian startups offer ESOPs to employees beyond the senior management team. Nearly 1 in 3 offer ESOPs to all employees, regardless of rank. This approach aligns incentives and motivations across the organisation and nourishes a culture of ownership.

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Dive Deeper:
Indian rupee better placed than EM peers, despite touching new low
Fears of a slowdown in global growth amid upcoming interest rate hikes by the US Federal Reserve have dampened investors'…
Razorpay offers to buy back up to $75 mn worth of Esops
Esops will be bought back at a 14% discount to Razorpay’s December 2021 valuation of $7.5 billion
Why HR managers are being catapulted into the CEO seat
Tesco Ireland’s recently appointed CEO Natasha Adams comes to the role after four years as the parent group’s chief people…
Companies offering higher starting salaries in bid to attract more staff
Businesses across the UK are struggling to recruit workers into temporary and permanent jobs, a new report has found
One subscription that gives you access to news from hundreds of sites
A Sleepy California City Gets the Elon Musk Makeover
Brimming with SpaceX engineers, Hawthorne, California, has become an unlikely focal point for a new era of manufacturing.
Steve Cohen’s secret weapon for the Mets: His hedge fund
Some employees from the billionaire’s firm, Point72 Asset Management, are moonlighting in crucial roles for his baseball team. Many are…
Get all your news in one place