Hi All, I would like to inquire about the value of Employee Stock Ownership Plans (ESOPs) in startups. As startups often include ESOPs as an addition to the cash component in their compensation packages, I am curious to know if employees truly recognize the benefits of ESOPs. Considering the current startup ecosystem, I am also interested in whether employees would prefer cash compensation over ESOPs.As someone who has experience as both an HR representative and an employee, I would be interested in hearing your views on this topic.

@Kashish Sharma do you have any articles/references?

This topic is always in demand for discussion. As it has a lot of confusion. @[TSOW] Nisha Kumari @[TSOW] Priya Bhatt Can you please arrange any community call or master class on this?

I think ESOPs are really helpful in attracting and retaining talent. In my experience, it really helped me getting top tech talent amid talent war among startups and big tech. At the same time its challenging to sell ESOPs to everyone and make them understand the wealth creation opportunity through ESOPs. https://www.financialexpress.com/money/income-tax/how-start-ups-are-using-esops-to-attract-and-retain-the-best-talent/2329132/

@Harender Bisht we already had a call on ESOPs sometime back

Oh. It seems I missed it.

Session would’ve been helpful, I missed it

@Bakul Bhagwat For me it has been a difficult journey to sell ESOP to employees for a startup (Series A & B). This is because it doesn’t has a concrete near value; it’s more of a gamble ‘IF’ the company performs good. Also, it is to be explained to the candidates/employees that they will be getting common stocks, not preferred stocks. This has also led to a not so good experience with employees when the company was closing and the stocks purchased by employees lapsed.

Sure, let's do it. I'll set it up for next week 🙌

@Bakul Bhagwat ESOPs are definitely invaluable but unfortunately miss-understood and made to seem more complex than they actually are. I agree with you that most employees would rather emphasize on cash-comp than equity, but that's because ESOPs don't get the due justice in terms of explaining and representing them. Speak with any serial 0-to-1 founding member and you'll see how they immediately value equity that's offered. We had written this blog long ago - https://equitylist.co/blog/how-stock-options-can-change-your-life This is exactly why we are building EquityList btw - to provide employees with the right dashboard, add FAQs across the grant-signing flow to elaborate on basic definitions that employees may not be acquainted with, share vesting pay-slips whenever a vesting event takes place to notify the employee about # of units and the value of units vested on that date, etc. We even created Equity Offer Letters - beautiful offer letters with interactive calculators for a hiring candidate to understand what's the value of ESOPs that are being offered to them.

A large part of it goes into educating and making your employees aware of how this can be a generational wealth creator for them. Equity 101 Course A great way to reinforce this - is if the company can afford to do buy-backs of shares - employees would be able to realise the value of their holdings and not just when the company gets acquired/goes IPO etc.

Yes true. Esops can hold immense value, they are still essentially speculative future income with an uncertain timeline. In light of this, is it reasonable to include a buyback clause?

Yes, it is very reasonable. But that'd also involve using your legal team's help in corroborating the language around this. If for some reason, in a certain year, the company can't facilitate this process, then the company shouldn't be in a tough spot. At Carta, all employees (given the stage of the company) are offered RSUs, and buybacks happen every now and then. Here's the language that was used in our offer letters - Carta Liquidity Events Carta provides the opportunity for employees to sell shares of stock in a liquidity event on a periodic basis. There are a number of factors that go into the timing of liquidity events including investor demand, overall supply, general economic and market conditions, and other company events (such as funding rounds). Therefore, it is hard to predict an exact cadence of when these occur. However, Carta is committed to offering liquidity events on an ongoing basis. Eligibility to Participate in a Carta Liquidity Event An employee that has eligible shares can choose to submit orders in these liquidity events. Eligible shares are shares that have been settled AND held for at least 6 months (“Mature Shares”). Carta has held many liquidity events including CartaX transactions and tender offers over the past several years. Historically, current employees have been eligible to submit orders up to 20% of their total vested shares. Former employees have been able to submit orders up to 10% of their total vested shares.

We're excited to announce that a call on ESOPS is happening tomorrow! - Link

@Bakul Bhagwat As an HR professional and a start-up employee, I see people preferring cash components over ESOPs. This is due to the fact that ESOPs are more of a gamble - employees are given common stock rather than preferred stock, the company does not have a plan in case it is folded or acquired, and the market is volatile. Employees are hesitant to purchase ESOPs until the company is in a later Series of funding (likely D or higher).