E-commerce firms others use stock to lure high-level executives
With their ever-increasing valuation, pay packets that ecommerce companies offer to senior hires are getting fatter, too. And, they are sweetening up the offers with irresistible stock option plans to lure people from traditional retailers and sectors such as consumer goods and telecom, as supply of talent becomes scarce.
Online retailers are scaling up quickly as foreign investors pump in money and, to drive growth, these companies need senior executives at key positions. The scramble for talent is giving candidates an opportunity to call the shots.
"As it is getting tougher to find talent for vice president or CXO level for ecommerce companies, the new hires negotiate for equity upfront unlike a year ago, when decision regarding equity to employees was totally at the discretion of management and promoters," said Vikram Chhachhi, principal for global consumer markets at executive search firm Heidrick & Struggles. According to him, number of stocks given to new hires for critical roles would have doubled over the past year.
Offering ownership in the company through employee stock option plans (Esops) is a time-tested tactic to retain staff, and local ecommerce firms such as Flipkart, Snapdeal, CaratLane, MobiKwik, ibiboGroup, Pepperfry, Urban Ladder and Cbazaar have been using it as a retention tool as well as a bait to attract talent. What makes these offers sweeter is the enormous growth in the valuations of these companies - within a few years, value of Flipkart and Snapdeal has grown to billions of dollars.
"It's encouraging to see more and more employees, especially at the senior level, becoming aware of the advantages of equity stakes and making it a part of their consideration set when looking at a long-term career," said Mekin Maheshwari, Flipkart's chief people officer.
A year ago, Snapdeal was offering equity to a third of its 1,300 people. The percentage still remains the same, but the number of people employed by the online marketplace has nearly doubled to 2,500. "The quantum of ESOPs has been growing exponentially with passing years," said Saurabh Nigam, Snapdeal's vice president of HR.
A person joining senior management at online retailers today typically gets a fixed component of about Rs 1.5 crore, compared with Rs 80 lakh to Rs 1.2 crore a year earlier. Other offers for the right people include joining bonus, retention bonus and performance-based variable pay, which make compensations tempting enough for professionals to make a leap from traditional retailers and other sectors.
Some traditional retailers are also offering Esops and making their HR policies a bit more appealing to retain talents. But they are often dwarfed by competition from the new-generation rivals.
"Ecommerce companies are offering huge pay packages and it is a challenge for (brick and mortar) retailers as they are losing talents to ecommerce," said Dipak Agarwal, chief executive of DLF Brands, which sells labels like Mango and Mothercare among others.
It offers Esops, options for senior executives to work from home and opportunities for mid-level staff to do MBA through a tie-up it has with a private university.
But, according to Agarwal, "There is little scope for us to fight with them on the money." Arvind Brands tried to retain Rishi Vasudev, chief executive for Calvin Klein brand, but had to eventually let him go as Flipkart offered him a Rs 2 crore annual package, almost double of the Rs 1.1 crore he was making at Arvind, according to people familiar with the matter. Also, at Flipkart, Vasudev is entitled to Rs 50 lakh worth of ESOP each of the next three years. Flipkart said it can't comment on the offer.
"In most such cases, we let go the employee," said the chief executive of an electronics firm, who cited a recent example where a midlevel employee got a double-salary offer from an ecommerce firm.
Hiring by online firms is going to get fiercer with Flipkart and its fashion portal Myntra mandating HR firms to recruit 90 senior executives and dozens of mid-level staff. Amazon is also looking at ramping up its hiring in fashion and lifestyle category to take on Flipkart-Myntra, industry executives said.
Owners of ecommerce companies are happy to part with some equity to employees at critical roles. "This ensures a high level of stickiness in the long-run," said Mayank Pande, partner at consultancy firm Amrop India. "Today, equity is about 0.75-1.25 of the fixed component (which itself is some Rs 1.5 crore) compared to 0.5-1 a year ago," Pande added.
At Snapdeal, all at senior level own stock options, while at mid or junior positions, Esops are offered based on performance. At online travel portal ibiboGroup, the number of stock units given to employees as part of the total pie has risen 75% over the past year.
Jabong, the lifestyle and fashion portal, is in the process of doling out equities to senior management and staff at critical roles. "We are working this out as a retention policy and not to drive people out," said HR head Ashu Malhotra.
Some companies like Pepperfry, Urban Ladder and ibiboGroup are giving out employee stocks to all their employees and not just to a selected few. "Pepperfry is built on the principles of collective ownership. Everyone in Pepperfry owns Esops in the company," said founder and CEO Ambareesh Murty.