Startups using innovative compensation policies for its employees

Startups changed the conventional paradigm of remuneration not only in India but globally. Along with the basic compensation structure of fixed salary, they started offering ESOP i.e. Employee Stock Option Plans. Avoiding technical jargons, these are the equity partnership offered by the firm to its employees which can be exercised later when the firm goes public or gets acquired. Though it didn’t entice employees earlier, ESOP are becoming hot compensation offers now a days. Employees are even willing to draw lesser salaries in favor of ESOP to get windfall in future. And their choice is not baseless.

In the past one year, a number of startup employees got windfall profits after they exercised their ESOPs after being acquired by another company. In September’16, PayU Money acquired Citrus Pay for $130 million, effectively making some 15 employees of Citrus Pay “Crorepatis”, with one office boy, who was one of the first employees of Citrus Pay and had ESOPs, netted INR50 lacs. Such examples are forcing employees to favor ESOP.

In line with the trend, a number of high-profile executives are also increasing their exposure to ESOP. Ashwin Venkatraman, COO – Furlenco, took a salary cut of 50%, and instead netted extra ESOP. Raghu Mallena, CTO – Plackal, also opted for ESOP after taking a 75% salary cut. He reiterated his strategy, and said that “We should opt for risky ESOP over safe fixed pay. There is no point playing conservatively if you have already taken the leap of faith to join a startup”.

However, one needs to consider the fact that ESOP can be exercised or cashed only if the firm goes public or get acquired by another company. Thus, if one is capable to taking the risk and have patience to sustain in the startup for long, he will be rewarded with windfall gain.