Exit route is an issue



For example, Barings has given ESOPs in all it's present investments. Chrys Capital has made sure that stock option schemes are implemented in almost all the investee companies. Their logic is that they want employees to share value as it helps align the interests of the people with the organization.

But designing an ESOP for an unlisted company is also a lot tougher as there is no clear exit roadmap and that makes it tougher to convince the employees about the value of their stock options. "In an unlisted scenario, an extremely important, but at times ignored factor is communication of value to the employees on continuous basis. If we want them to feel like owners, they should know where the company is heading and should understand the value being created which in a listed scenario is visible by looking at the stock price,'' says Gulati.

Another sensitive issue to be grappled with in an unlisted scenario is the exit route for the employees. The exit can happen either by an IPO or a strategic sale or a buy back guarantee from the company or existing promoters. Since in India stock options are almost always granted in addition to the existing cash compensation, most companies do not offer a buy back guarantee to the employees.

Generally, a company targets listing on achievement of a certain amount of growth. Only if that target is achieved everyone including existing investors get an opportunity to exit, otherwise not. If the company is unable to go public because, say, the growth did not materialize as expected, then it can be devastating if it has to shell out cash to buy shares back from the employees," says Gulati

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