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Stock Options — the Carrot to Attract Good Talent

How does startup attract the best talent? Yes, most often ? after all is said and done [salary comparison, location, job spec etc] ? Employee Stock Option Plan (ESOP) ? may be the carrot to attract qualified candidates to their leave a cushy job.

Here?s what some of the global technology titans created for their employees ?

  • 10,000 Microsoft millionaires created by the year 2000 [Richard S. Conway Jr., a Seattle economist]
  • 850 Facebook employees became millionaires after the IPO [Source: ITWorld]
  • 1,000 millionaires (approximately) that Google’s IPO created [Source: ITWorld]

In India ?

Mint had an article last week on ? Stock Options ? and its adoption by Indian companies to attract and retain talent. Just few data points from the article [Source: Mint, Stock Options Back in Vogue]:

  • Just Dial: Stock options are offered to only 10% of the employees. 50 of its 6,000 employees benefited from the ?up round?.
  • One97 Communications ? Expects to create more than 10 crorepatis through its ESOP plan.
  • Flipkart ? 50 employees with stock options valued more than Rs. 1 cr.
  • InMobi ? 25 to 30 employees ?very wealth? on paper

It seems like companies are headed in the right direction with their ? share the wealth ? attitude. However, it is important for employees to examine and do their due diligence before taking the ESOP plunge since the upside is ? only for the winners. Below are few basic questions companies/employees need to evaluate before participating on any kind of stock option plan.

For employees:

  • Basic Understanding ? What is an ESOP?
  • Read the fine prints ? Vesting, Lock-in, Dilution, Transferability, Expiration?
  • Are you getting in the right bus? Belief in the company/management team, investors etc.
  • Promised vs. Signed ? It must be signed at the time of employment and NOT promised at a later date [Source: University of Hard Knocks]

For Startups:

  • If you fail to plan, you plan to fail ? What to offer, whom to offer?
  • Company structure, choosing the right ESOP Plan
  • What percent is your option pool, pricing stock option?
  • Accounting and legal implications?

What has been your experience as an employee/company?


1 Comment

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