Flipkart Rewards Employees: Distributes $700 Million Payout
Flipkart, the Indian e-commerce company, has initiated a cash payout of $700 million to its employees as compensation for the loss of value following the separation of its digital payments arm, PhonePe. This payout is considered the largest one-time cash payout among startups in India.
CEO Kalyan Krishnamurthy informed employees in an internal email that the payout amounts to $43.67 for each vested and eligible ESOP (Employee Stock Ownership Plan) as of December 23, 2022, for current and former stakeholders.
The cash payout is aimed at addressing the discrepancy in the value of Flipkart’s ESOPs resulting from the separation of PhonePe. The move demonstrates Flipkart’s commitment to recognizing and compensating its employees for the impact of significant business changes.
In December 2022, the board of directors of Flipkart Private Limited made the decision to fully separate the PhonePe business by divesting its entire shareholding. This strategic move allowed Flipkart to focus on its core e-commerce operations while enabling PhonePe to operate as an independent entity. The separation aimed to unlock value and growth opportunities for both Flipkart and PhonePe in their respective domains.
Following its separation from Flipkart, PhonePe has successfully raised $850 million in primary capital as part of its ongoing funding round. The company is expected to close the round at a total of $1 billion.
The recent infusion of funds has valued PhonePe at $12 billion on a pre-money basis, highlighting the strong investor confidence in the digital payment platform’s growth potential and market position. These funds will further fuel PhonePe’s expansion plans and enable it to enhance its product offerings and reach more users in the competitive digital payments landscape.
According to an earlier report by ET, the cash payout worth $700 million as compensation for the loss of value after the PhonePe separation will be distributed among more than 24,000 employees. This includes eligible current and former Flipkart and Myntra staff.
The exact number of employees receiving the compensation has not been disclosed by Flipkart. The significant cash payout represents the company’s commitment to recognizing and compensating its employees for the impact of the PhonePe separation on their vested and unvested ESOPs.
According to data compiled by Fintrackr, the Indian startup ecosystem witnessed a decline in the value of ESOP (Employee Stock Ownership Plan) buybacks in 2022. Around 25 startups announced ESOP buybacks worth $200 million, which is a significant decrease compared to the $440 million worth of ESOP buybacks in 2021.
Flipkart, one of the leading startups, conducted an ESOP buyback worth $80.5 million in 2021, securing the top position in terms of value. The decline in ESOP buybacks reflects a shift in the startup ecosystem’s focus and priorities during the given period.
In 2023, the number of startups announcing employees’ stock buyback programs was limited. Among those that did announce such programs were Winzo, Tredence, and Sunstone. Collectively, the value of these buyback programs amounted to nearly $35 million. The smaller number of startups participating in ESOP buybacks in 2023 suggests a potential trend of reduced activity in this area compared to previous years.
The recent buyback announcement from Flipkart is seen as positive news, especially considering the current state of valuations in the startup ecosystem and the reduced frequency of large-scale ESOP buybacks. Flipkart, known for its success in implementing ESOPs, has set an example for other startups.
The buyback program will benefit thousands of employees, highlighting the importance of fair negotiations and distribution of ESOPs by founders. This serves as a reminder that many other “unicorns” still have progress to make in ensuring that employees are not left out and receive their fair share through ESOPs.
