Case Study – ESOP Direct

Prescription for CEO dream

admin — Thu, 14 Nov 2019 07:48:58 +0000

This is a leading listed Indian pharma company with a track record of more than 6 decades and market in more than 150 countries, worldwide. The family controlled business decided to hire a pharma professional of high repute from a multinational company for the CEO position. The company expected him to be leading the company through organic growth and fortifying overseas presence through strong alliances and also acquisitions.

Challenges

The challenge was to create an attractive proposal that would be seen by the prospective CEO as an opportunity for long term wealth creation. However, the company also looked to balance wealth creation with equity dilution. The company needed to to bring market parity to overall compensation for the CEO.

Solutions

A scheme of discounted ESOPs was built around the objective of creating an attractive wealth creation opportunity. Units under this Plan were given at discounts with a staggered vesting schedule within a vesting period of 5 years. The scheme was rolled out while ensuring compliances under applicable laws and optimized for accounting costs. ESOP Direct also offered support in through the software platform My ESOPs.

Value delivered

With the discounted scheme we were able to bring down funds outflow from employees at the time of exercise. We also lowered dilution to shareholders. This stood in favor of the company and indeed proved to be a win-win situation.

The post Prescription for CEO dream appeared first on ESOP Direct.

Planning equity incentive for a company on its way to achieve unicorn dream

admin — Mon, 04 Nov 2019 09:27:12 +0000

The company is an online platform which assists patients to fix appointments with doctors, digitize their health records and have online consultations. With a strength of around 2000 employees, the company manages over 40 million appointments in more than 50 cities in India , Singapore, Indonesia, Philippines and Brazil.

The promoters went ahead with raising funds from private equity at an early stage. It was evaluating an employee stock option Plan that would be an effective long term incentive for senior management and be instrumental in achieving future growth.

Challenges

Although the company had adopted best practices for its employees, this was the first time it had ever considered stock grants or equity linked Plan and had no past experience.

The dilution, exit route, employee coverage, quantum of options to each employee, pricing and even the management of the Plan, whether through a Trust or otherwise were decisions that would have implications on the effectiveness of the Plan.

Solutions

We spent generous time breaking down the corporate goals and constraints with the management. This was followed by scoping key talent and senior management employees based on their role in the company. The team analyzed alternative equity instruments in the industry and benchmarked scheme parameters. Option pricing and dilution impacts was optimized for stakeholders. The final scheme was designed with flexibility to cover situations in regard to making future grants. Exit routes were clearly prioritized, that the employees would have a clear idea at any given point about the benefit of liquidating their options.

Value delivered

ESOP Direct’s role as a partner in conceptualizing designing and implementing the ESOP program brought in a level of comfort to the management. The entire process moved without stumbling blocks and within timelines. This usually has direct and indirect cost implications to the client especially with a scale of operations such as this. ESOP Direct’s longstanding experience helped in making the process cost efficient. We were able to optimize the scheme in terms of dilution, liquidity, present and aniticipated, as well as employee retention.

The post Planning equity incentive for a company on its way to achieve unicorn dream appeared first on ESOP Direct.

Equity incentive in family owned enterprise

admin — Mon, 04 Nov 2019 09:25:57 +0000

A family held enterprise with a global presence in HRO services, this compay offers technology solutions spanning the complete hire-to-retire cycle. The founders have longstanding industry experience and have been instrumental in setting up businesses in the IT/ITES sector worldwide.

While the company followed best practices for its employees, it did not have a stock grants or equity linked Plan. The management were looking to engage end to end expert services for a suitable ESOP as an incentivization tool for employees. These services would include planning, designing and implementation of the Plan.

Challenges

As they were nearing superannuation, the founders acknowledged it was time they moved from a family owned business to a professionally managed company. This required thorough leadership planning. The founders however were not aware of the risks and repurcussions of equity dilution under a stock option Plan.

As the company was closely held, there was no clear-cut exit route in place. It was a challenge to design an equity linked Plan with multiple decisions involved at different levels, be it coverage of employees, fixing individual quantum, time /performance based vesting, pricing considerations or Trust-route v/s direct route.

Solutions

When ESOP Direct took the mandate, the team asked the founders to identify key talent in the organization. Elaborate discussions followed and alternative equity instruments were evaluated. Finally, a stock options Plan was designed at the parent holding company level to cover senior management employees, The employees were selected on the basis of their criticality in the company. The scheme parameters were drawn after comparison with industry best practices so as to leverage the Plan to recruit and retain key talent.

Option pricing and dilution impacts were optimized. Exit routes were clearly defined with external exits as a chosen alternative, such as primary listing, strategic sale and fund infusion in future. Buyback was also kept as a provision in case external exit didn’t happen within due time period. This would give clear visibility to Plan participant about monetization opportunity.

Value delivered

The process of moving from a family held organization to a near democratic system with stock options was difficult, especially as the organization had no past experience in equity compensation. At the outset, we had to prepare the ground for knowledge transfer to the founders. A sensitivity analysis was then taken up, to help them make an informed decision with regard to planning the dilution. ESOP Direct team walked the company through the planning and design process in a completely hand holding relationship. We ensured the scheme had ample flexibility and versatility which helped create greater trust and transparency between management and employees.

The post Equity incentive in family owned enterprise appeared first on ESOP Direct.

Revisit for a better fit

admin — Mon, 04 Nov 2019 09:25:11 +0000

A market leader in the housing finance industry, this listed company with an employee strength of more than 5000, had implemented ESOP plan and granted stock options mostly at FMV to identified levels including branch heads. The objective was to inculcate employee ownership culture, retain key employees and also attract fresh talent.

Challenges

The company wanted to drive performance through equity sharing and set the parameters for future grants to the rule of ‘pay for performance’ . The management felt the dilution needed to be optimized to sustain over a longer period. The company also sought to balance wealth creation with equity dilution and to rationalize accounting costs. The company wanted to address the liquidity concerns for employees towards payment for exercise price. It was felt that there was a need to reform and evaluate a new equity linked LTIP to optimize multiple goals.

Solutions

After detailed discussions with the compensation committee, ESOP Direct team designed a Stock Appreciation Rights (SARs). It evaluated both cash based and equity settled equity instruments, to cover employees on the basis of their criticality and providing them opportunity of high wealth creation. Scheme parameters were calibrated with the industry best practices and peer group. Pricing and dilution impacts were optimized. The Plan was designed for flexibility to cover situations with regard to making future grants. We also suggested the use of appropriate software platform for Plan administration to enhance employee experience and branding for better communication and buy-in.

Value delivered

Our association from the initial stage of feasibility study and Plan conceptualisation to legal documentation and final roll-out helped the management maintain complete clarity on project deliverables which in turn made strategic/tactical discussion much more efficacious. The sensitivity analysis we presented helped the compensation committee to plan the dilution such that it rendered the best possible benefit to stakeholders.The special employee communication session we conducted synced the objectives of the management and employees and created a win-win situation.

Challenges

Solutions

Value delivered

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