“Is this going to make me wealthy?” is probably the first question anybody would ask when they are offered ESOPs for the first time (maybe not out loud but it definitely comes to our heads).
While ESOPs are not guaranteed to generate wealth, they create new possibilities of acquiring it in the future.
All of us at some point in time have heard about early employees of Facebook, Google, and Amazon becoming millionaires as soon as their companies went public. Here are some more stories of ESOPs changing lives of people:
As an 18-year-old, class 10 graduate from Hisar, Haryana joined Slideshare - world’s largest slide sharing platform (which was later acquired by LinkedIn) in 2006 as an office boy for a meager salary of Rs. 3,500 per month.
He had come to Delhi looking for employment and was living with his maternal uncle at the time who used to run a tailoring shop near Slideshare co-founder and COO, Amit Ranjan’s house. That’s how he got introduced to Amit, who decided to hire him. Little did he know that the next decade of his life is going to be super exciting.
With time, he grew to take care of administrative and human resources work while completing his college education. When LinkedIn bought Slideshare for $119 million in 2012, Ashok became one of the lucky employees to cash in on the opportunity. He made somewhere between INR 12 - 15 lakhs at the time of the acquisition. After completing his bachelor’s in commerce, he even went on to complete his MBA and used the ESOP money to later purchase a home for his family in New Delhi.
Shyam Kumar Singh
A 42-year-old office boy from Mumbai, had a similar story as Ashok. Shyam was one of the first hires of Mumbai-based mobile wallet startup called CitrusPay which was founded in the year 2010. He was also the first employee to be a part of CitrusPay’s employee stock plan.
Shyam started working with the company at a meager salary of Rs. 8,000 per month and stayed with it for 7 years until company’s acquisition by South African online payments company PayU in September 2016 at a valuation of INR 860 crores. Shyam made INR 50 lakhs from his stake in the company. Around 50 CitrusPay employees cashed in their stock options worth INR 43 crores, at least 15 of whom were rewarded with over INR 1 crore each.
Judy Tong Wenhong
More popularly known as the “Most Inspiring Partner” of the e-commerce biggie Alibaba. She served as the company’s receptionist, then as a customer service representative, and finally, a vice president. Judy stuck with Alibaba for more than 14 years before she was able to make any money out of her ESOP grant.
Allegedly when Jack Ma was allocating company shares, he gave Tong 0.2% shares right saying it will worth $100 million when Alibaba goes public into the market later. He asked her to just stay in the company, don’t change to other companies and she will get $100 million when Alibaba goes public.
When Alibaba finally went public in September 2014 on the New York Stock Exchange, the company was worth $245.7 billion. Tong, the former senior receptionist, now one of the Partners of Alibaba, became a millionaire with her stake valued at $320 million.
PayTm organized its first-ever ESOP sale (also known as “Secondary” sale) in 2017 and ended up making 47 of its employees collectively INR 100 crore, turning many into overnight millionaires.
Not too long after that, another ESOP sale was organized worth INR 300 crores and valued PayTM at $10 billion (~ INR 65,000 crores). More than a hundred employees ended up selling stock options worth more than INR 10 lakhs. Around 20-25 employees sold stock options worth more than INR 6 crores.
Among the people who ended up making money during the second ESOP sale was - Paytm Canada’s Chief Executive Harinder Takhar, who cashed out $6.3 million (~INR 40 crores) worth of stock. PayTM’s stock program didn’t just benefit its top employees - an office boy at the company cashed out options worth INR 20 lakhs.
The List Goes On:
- When Tiger Global came onboard RazorPay’s board in November 2018, 140 employees were able to cash in their ESOPs.
- Temasek Holdings (Singapore's sovereign wealth fund) bought shares worth $30 million (INR 213.5 crores) from former and early employees of the cab-hailing company Ola as part of a secondary share sale.
- At the time of Flipkart’s acquisition, Walmart was obligated to purchase 6,242,271 shares from Flipkart’s ESOP pool of 11,947,026 shares worth nearly $800 million (INR 5,694 crores).
- Flipkart board had also approved a $100 million (INR 711.7 crores) ESOP repurchase plan in October 2017.
- Nearly 30 ex-employees of Gurugram-based logistics unicorn Rivigo encashed their stock options in the company, reaping an estimated amount of $10 million (INR 71.1 crores).
- Unicorn food delivery company Swiggy approved its first employee stock repurchase program. The share buyback, which had to be implemented in June 2018, was estimated at over $4 million (INR 27 crores).
ESOPs involve risks — it’s not always certain that you will end up making money from them. ESOPs may not make sense for every single compensation plan and require an understanding of the impact of exercising options.
While many employees find that they can majorly boost your cash compensation on changing jobs periodically, we can see from the examples above that most of the people who ended up earning life changing sums from ESOPs were the early to mid stage hires of these companies, essentially people who decided to stick with the company for the long haul.
These employees were the ones who believed in the startup idea, who were willing to accept ESOPs as a part of the payment for their work instead of cash and were ready to contribute towards the growth of the company thinking of it as their own (which is actually true in a certain sense since ESOPs can make you part owners of the company).
That does not mean that you should treat ESOPs like a cash equivalent. ESOPs are a high risk and high reward type of investment tool. There has to be thorough research involved as to how the company is doing and see if you truly connect with its vision. You need to understand the concept of ESOPs and how they work before you make any decisions. This article might come in handy for understanding the same.
Cash plays an important role in meeting our daily expenses, however, it may just be worth to receive stock options because you may never know if your company is going to be the next billion-dollar company. Once you have a stake in it, it’ll be all the more exciting to work towards making it one.