While several Indian startups have initiated Employee Stock Ownership Plan (ESOP) buybacks during their tenure, Meesho has been a bit of a trailblazer with not one but two rounds in 2020 — one pre-pandemic in the month of February and the other in December. Don’t take our word for it, but read what this Economic Times feature has to say about our ESOPS programme.

As a special long-term incentive programme, ESOPs is being adopted by many startups in India to reward high performing employees. Meesho has been a trendsetter in this regard and continues to offer the best ESOPs benefits to its employees. This was not only Meesho’s way of thanking employees in the company pre-pandemic, but also lending them support and a sense of ownership during the tough, pandemic year that was 2020.

ESOPs are a great way of rewarding employees with direct ownership/stakes in the business. It helps build ownership levels and align the objectives of employees, who go from only workers to part-owners, with that of the company. Being shareholders themselves, employees are incentivised to promote the success of the company’s business. You can learn more here about our first ESOPS buy back programme.

Meesho’s first rounds of ESOPs buyback programme was valued at $1 million (Rs 7 crore) and was completed in February 2020, while the second one, which was rolled out in December 2020 worth about $ 5 million (Rs 37 crore). Employees ranging from the junior-most to senior leaders took part in the programme backed by Meesho investor Prosus (formerly known as Naspers).

CFO Jatin Mazalcar weighs in on why Meesho’s ESOPS programme is particularly favourable towards its employees, keeping their best interests in mind and also why it is perhaps one of the best in the Indian startup ecosystem today.

An employee friendly vesting schedule

Generally when ESOPs are granted, there is a graded vesting period which can last upto many years. This means that only 10% of an employee’s accrued benefits will vest in one year, followed by a vesting of 20% in after another year of service, 30% after three years of service, and so on. At Meesho, we do not have a graded vesting, and instead employ straight line vesting, meaning employees get 25% of their vesting after the completion of the first year itself.

Another huge benefit for Meeshoites is also that the wait for vesting is not annual. After the first 12 months of employment, you get your first slot, after which you get shares every single month for 36 months.

A fair exercise price

In most companies, the exercise price of the share is 25% of the fair value. Say, the value of the share is $10, typically the earnings of the employee would only be $7.5. In Meesho however, this value is nominal with most of the value of the ESOPs accrued to the employee. So, for a stock of $10, the employee would get most of the amount after the deduction of 15 cents or Rs. 10.

Tax benefits & easy conversions into common stocks for upto 10 years

In many companies after termination you are supposed to exercise the ESOPs and convert them into shares within three months of your exit. This period for us is 10 years after exit, giving our former employees a longer period to make important financial decisions.

When you exercise, you have to pay the perquisite tax which goes from the employees’ pocket. For a listed company you can convert and sell the share on the stock market, but in most unlisted startups you are not able to buy the shares unless there is a liquidity event. In our case since the employee doesn’t have to close in three months, they can convert them from ESOPs to common stocks in upto 10 years as well.

A democratic distribution of ESOPs

In most companies, only the senior most leadership are given ESOPs benefits, but at Meesho, this is not the case. Most Meeshoites who are performing well and consistently demonstrating Meesho values are awarded stock options as an incentive. We wanted to create wealth among as many employees as possible, irrespective of hierarchy.

Our ESOPs are valuable

Very few companies across India have given buyback options to employees early on in the company’s journey. But, within a mere three years of our existence in the current state, Meesho has done two buybacks, which has created a lot of value for our employees. The increasing investor interest in our stock also makes our ESOPs extremely valuable.

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