Swiggy’s Largest-Ever ESOP Liquidity Program: What It Means for Employees
Swiggy launched on Monday its largest-ever staff Stock Ownership Plan (ESOP) liquidity program, which is expected to increase staff morale ahead of its initial public offering (IPO). The program permits employees to sell a portion of their corporate stock options for a maximum of $65 million.
What is the ESOP Liquidity Program?
The Employee Stock Ownership Plan (ESOP) liquidity program enables employees to turn their shares into cash, thereby monetizing their ownership positions. This program recognizes and rewards employees who contribute to the company’s success, instilling a sense of ownership and long-term commitment.
Who is eligible to participate in Swiggy’s ESOP program?
Eligibility criteria
Employees from all levels and divisions at Swiggy are eligible. This inclusion guarantees that the program is accessible to a diverse group of employees.
The number of eligible employees
The corporation has provided over ₹1,000 crore in liquidity to over 3,200 employees across all levels and divisions through previous programs.
Historical Overview: Swiggy has introduced its ESOP (Employee Stock Ownership Plan) liquidity program for the fifth time, ahead of its upcoming IPO. This initiative has been a recurring part of the company’s strategy to provide liquidity to its employees.
Financial Impact: Across these five liquidity events, Swiggy has facilitated over ₹1,000 crore in ESOP liquidity, underscoring its commitment to providing significant financial benefits to its employees.
Purpose and Objectives:
- Employee Motivation: Girish Menon, Swiggy’s Head of Human Resources, emphasized the company’s dedication to rewarding its employees and creating wealth-generation opportunities as Swiggy continues to expand.
- Wealth Creation: By enabling employees to own a stake in the company, Swiggy aims to align incentives and foster a culture of collaborative excellence. This approach supports both individual and collective growth, reinforcing the company’s belief in shared success.
Company Valuation and Market Impact
Industry reports indicate that Swiggy’s valuation has reached $9.3 billion based on secondary transactions, where shares are sold to employees ahead of the IPO.
Participation by Co-Founders and Employees
The ESOP liquidity program is set to include both Swiggy’s co-founders and other employees, who are expected to sell portions of their shares through this initiative.
Official Commentary
Girish Menon, Swiggy’s Head of Human Resources, remarked, “As we near a decade of Swiggy’s journey and consumer appreciation, this latest ESOP event serves as a tribute to our employees’ hard work and our ongoing commitment to sharing Swiggy’s success and growth with them.”
How ESOP Programs Benefit Employees
Financial gain
An ESOP liquidity program benefits employees by generating a financial return by monetizing their vested shares or stock options, giving liquidity to otherwise illiquid assets, recognizing and rewarding their achievements, and inspiring them to stay with the firm in the long run.
Sense of ownership
Giving people a sense of ownership and engagement, providing tax breaks, allowing for diversification of investments, and encouraging openness.
Taxation Challenges for ESOPs
Taxation during exercise.
Employees are taxed on ESOPs twice under the current arrangement.
First time: exercising the option (perquisite)
This occurs when an employee chooses to convert their ESOPs into genuine business shares. The tax is calculated as the difference between the share’s fair market value (real market price) and the exercise price (the reduced price paid by the employee).
Taxation at Sale
Second Time: Selling Shares (Capital Gains)
This is comparable to how a shareholder pays capital gains tax when selling their stock. The tax is based on how long the employee retains the shares (holding period) and the difference between the selling price and fair market value at the time of exercise (buying).
Tax Benefits of ESOP Programs
This program may provide some tax-saving opportunities for employees.
Long-term capital gains from the sale of ESOP shares can be offset by long-term capital losses from other investments, potentially lowering overall tax liabilities.
Claim a tax deduction under a specific portion of the Income Tax Act (portion 80C) for the amount invested in ESOP shares, up to a yearly limit.
Comparison of Other Companies’ ESOP Programs
For example, in 2020, Ola, India’s biggest ride-hailing business, announced a $150 million ESOP liquidity program that would allow eligible employees to sell a portion of their vested stock options before to the company’s anticipated IPO.
Regulatory considerations
These programs are often implemented before a business goes public, as post-IPO restrictions (Regulation 37 of the SEBI ICDR restrictions) require a one-year lock-in period for pre-issue capital.
Potential risks and drawbacks
While Swiggy’s ESOP scheme provides liquidity and potential rewards, employees continue to confront tax issues due to the way ESOPs are taxed in India. The program attempts to minimize this by potentially permitting certain tax-saving techniques.
Conclusion
Swiggy’s ESOP liquidity program is a key step toward rewarding its employees and aligning their interests with the company’s progress. Swiggy seeks to retain talent and engage employees to work toward common goals by providing financial incentives and a sense of ownership. Employees should, however, carefully evaluate the tax implications before completely utilizing this program.
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