Product details

India, ranked as the world's third largest start-up ecosystem, was growing exponentially, adding three new unicorns on average every month. However, these unicorns were struggling to retain talent due to unattractive compensation packages, long working hours and job insecurity, resulting in high employee turnover cost. To overcome this problem, many start-up managements started using the Employee Stock Ownership Plan (ESOP) to incentivise employees with an eye to increasing loyalty and retention. Given in lieu of a lower salary, these ESOPs did not create a significant impact on the employees' loyalty, especially during difficult economic situations due to the absence of an attractive exit policy, prompting a few companies to make their ESOP policy more employee friendly. In November 2021, Licious, a Bangalore-based unicorn, announced a new ESOP policy with flexible liquidation, featuring a daily vesting structure, with the aim to retaining key employees by rewarding them for their contribution and to promote transparency around its ESOP programme. However, market analysts claimed that while Licious' daily vesting ESOP scheme had the potential to drive productivity and increase the employee's engagement in the organisation, the non-restrictive vesting period could likely hurt employee retention and result in huge cash burnouts negatively affecting cash-flows and leading to salary cuts during challenging business environments. Further, this can erode the company's valuation. Considering the importance of the ESOP programme to Licious' competitiveness, would it be prudent for the company to abandon the concept of mandatory vesting period for ESOPs? Would the company be successful in improving the retention rate through this engagement strategy?