In a significant move, Flipkart has commenced a cash payout totaling $700 million to its employees. This payout is intended to compensate for the loss in value resulting from the separation of PhonePe, the digital payments platform, from Flipkart. Notably, this is the largest one-time cash payout ever made by an Indian startup.
Flipkart CEO Kalyan Krishnamurthy informed staff members via internal email that the board had decided to award $43.67 for each Employee Stock Ownership Plan (ESOP) as of the record date of December 23, 2022 to each eligible current and former stakeholder as well as eligible current stakeholders with unvested options.
When Flipkart Private Limited sold all of its shares in December 2022, the separation of PhonePe from Flipkart was complete. Since then, PhonePe has been successful in raising $850 million during its ongoing investment round, and the total is anticipated to exceed $1 billion. PhonePe was valued at $12 billion before the addition of these new monies via this fundraising effort.
Although the exact number of employees benefiting from the payout was not disclosed by Flipkart, an earlier report by ET indicated that over 24,000 employees, including former Flipkart and Myntra staff, would receive the cash payout.
Following a record repurchase in 2021, the buyback, liquidity, or payout programmes for employees significantly decreased in the Indian startup ecosystem. ESOP buybacks announced by 25 startups totaled $200 million in 2022, down from ESOP buybacks announced by the same 25 businesses in 2021 that totaled $440 million, according to statistics collated by Fintrackr. With an ESOP repurchase of $80.5 million in 2021, Flipkart stood out from the crowd.
Only three companies launched employee stock buyback schemes in 2023, totaling around $35 million: Winzo, Tredence, and Sunstone.
The recent buyback by Flipkart brings some positive news at a time when valuations in the industry have become more uncertain, and large-scale ESOP buybacks have become increasingly rare.
For the thousands of employees who will gain from this development, Flipkart’s position as one of the pioneering and most successful startups in terms of ESOPs makes it especially significant. It also draws attention to the difficulties many other “unicorns” have in negotiating and distributing ESOPs fairly, which results in some employees losing out on these advantages as a result of founders’ errors.