As of last year, around 32 start-ups had spent close to ₹3,000 crores or $440 million to buy back ESOPs. An increasing number of start-ups are not only offering the benefits of ESOPs to the upper echelons of their management but their other employees as well. It’s not surprising, as ESOPs are a sure-fire way to boost employee morale and attract the best talent in an ever-competitive market. But start-ups have their challenges when it comes to this financial tool.
How can ESOP Ezee help them overcome these?
The Challenges India’s Start-Ups Face
Many Indian employees currently have a neutral view towards ESOPs and don’t understand how these options work. Many would prefer hard cash rather than ESOPs. Also, some start-ups keep an unrealistic ‘strike price’, which discourages the employees from exercising their options, or even considering them as real incentives because they appear so out of reach.
In fact, many startups face a problem in getting employees to believe in and engage with the ESOP plan. The benefits seem intangible since employees don’t have a sense of what it would take to get their fair share and what the shares would be worth then. In a related issue, regulatory compliance, and taxation issues are not well understood, leading to greater effort by the startup in managing the ESOP program and more doubts being created in the minds of the employees.
Another challenge for start-ups is having their employees believe in the company’s longevity. If a company doesn’t have a bright long-term outlook, its employees aren’t going to want ESOPs. Especially if those are a trade-off for hard cash. Only employees who believe that the start-up will experience long-term success will want more ESOPs. If a start-up also experiences poor rounds of venture capital, employees will be deterred from accepting ESOPs. The start-up won’t be able to use ESOPs to attract and retain talent as the existing ESOP holders will know that their options have declined in value.
With so many factors weighing down the minds of both start-up founders and their employees, the biggest challenge ends up being the technical and administrative issues related to creating the right ESOP plans, rolling them out, and administering them on an ongoing basis. There are many technical issues involved, along with mountains of paperwork, and with very little space for error. How can start-ups ensure their ESOP plans are smooth and without any hitches?
ESOP Ezee’s Solution
ESOP Ezee helps start-ups address all these challenges. It’s a managed service with a team handling the design, roll-out, back-end processes, and management reporting. The company’s team delivers tailormade plans and documents to roll out ESOPs and manage them transparently.
ESOP Ezee provides planned administration services through a mobile app and an integrated online platform that provides easy access to data and analytics reporting. Companies can easily make online grants. Employees will have respective accounts that they can log in to and view their grant documents, options, and their value. Employees can exercise, view their tax obligations, and make their payments online.
Build – Manage – Comply Lifecycle
We build ESOP strategies, manage the back-end processes, and ensure everything is compliant. That’s useful in many ways.
Unlisted companies need to provide liquidity options, through either a cash settlement or through investors purchasing employee shares. That could be through cash or investors buying employee shares. Events like this require pre-planning, employee coordination, meeting legal compliances, and tax obligations. Our platform handles the end-to-end processes that are related to such events.
We have a system of build – manage – and comply. That means by using our services, start-ups can easily navigate through tax calculations, reporting, and other compliance requirements. They can evaluate options, related disclosures in financial statements, and more. We also deliver share valuations needed to arrive at tax obligations. We also have options for those using the trust route as we have optional add-ons where customers can use a trust setup, administrative system, and trustee services.
The best part is that our services are tailor-made for early-stage start-ups. We understand that such companies need flexibility, and need to make things simpler and less complicated for their employees (and founders). These companies may not have the in-house experience to roll out legally compliant plans and manage them as well. But ESOP Ezee can solve that by acting as an end-to-end managed service.
Using a partnership approach, we take our clients through the life span of their ESOPs and help them make these work efficiently.
Since ESOP Ezee is a managed service, not a SaaS platform, we also have a human touch added to our services. We handle the back-end processes, management reporting, and more. That way, you won’t have to worry about the platform being used, maintaining data, or having trustworthy and efficient support.
Since we look after the planning, execution, and compliance stages, we take a huge load off both start-ups offering ESOPs, and their employees. Employees won’t have to face a lots of complicated processes to keep an eye on their policies and can manage their options easily and without hassle. That will make them more willing to keep options, and perhaps take on more if the company offers them. There are many other benefits as well, which will only help companies meet their desired goal of having an efficient ESOP management system. Check back with us on how we can power up your ESOP strategy too.