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“Start-ups have emerged as drivers of growth for our economy.”

You would have noticed that many startups have been liberal in passing on the benefits to their employees in the form of Stock Option Plans. Numbers say it all! Companies have expended close to INR 3,000 crore (or USD 440 million) in 2021 on Stock Option Buybacks. Indeed, Stock Options are for real! 

A deeper look into the announcements during 2021 reveals interesting trends:

• Option pool (creation / expansion) and Option Buyback announcements are the most prominent.
• Issue of all-encompassing Options is gradually gaining traction.
• Nuances and distinguishing features of different types of plans – Free Exercise Plans, Restricted Exercise Plans and Stock Appreciation Rights;
• Determination of a balanced Vesting Structure;
• Popular Strike Price models with examples;
• Liquidity mechanism sans listing;

A Stock Option plan, well implemented, achieves the objectives of wealth generation for the employees and retention for the employer. Yet, as you would know, there is no standard formula to determine what kind of plan best suits a startup. The white-paper discusses some popular and some other unexplored ways to implement a good Stock Option Plan – for instance, how can the trust route prove more beneficial than the traditional direct route, how different Strike Price models can be implemented for employees based on seniority and so on. We have also suggested some changes in the regulations governing Stock Options which can provide the right impetus to the issue and implementation of Grants. 

We believe that the excitement in Stock Options would continue as we move into the year 2022 and beyond. The near future could see some important commercial and regulatory changes. To begin with, the Budget 2022 proposes to reduce the surcharge on sale of unlisted shares (long term shares). Though a minuscule benefit to shareholders / employees planning an exit, it is a step in the right direction. 

Link to the white paper

• Fireside Chat with Srini and Nithin

ESOPs have made the most noise in the last few years. To put more light on this, our founder Srinivas Katta moderated a talk with the founder of Zerodha- Nithin Kamath. In this episode, Nithin has shared his thoughts on how companies must approach ESOPs, the need for digitized ESOP management platforms etc., in addition to addressing various bottlenecks surrounding this subject. 

Catch the whole conversation here. 

Link to the firechat