Start-ups using stock options to stop attrition

A Mumbai-based education start-up recently lost two of its executives to a rival that offered to double their pay. The company that was poached from had handed out 20-40% raises this year. It said the increments being offered to fresh graduates were unreasonable.

"Poaching is a norm in our industry. But offering a Rs 24 lakh package to a six-month-old college graduate is insane," said the founder and chief executive officer of the education start-up, who did not wish either he or his company to be named. He is battling the retention problem with stock options. So are other start-ups.

At Stayzilla.com, increments have been 10-15%. The company, which provides stay options to customers like lodges, homestays and guest houses, said stock options served as a retention strategy because they provided an indefinite exercise period.

"Our employees are partners in our success and growth. So, they deserve good increments," said Yogendra Vasupal, founder, Stayzilla.com. The company has recruited 55 graduates from the Indian Institutes of Technology, Birla Institute of Technology and Science and the Indian School of Business.

Start-ups said though they were not able to match industry standards in salaries, stock options came in handy for performers.

"We plan to give stock options to our star performers," said Rupesh Shah, chief executive and founder of InOpen Technologies, a Mumbai-based start-up developing academic content. Shah said salary rises this year could be 15% to 40%.

Sector estimates suggest new-age technology companies were the best performers in 2014-15 in business revenue and funding from private equity investors. According to personnel experts, start-ups with more funding pass it on to employees after putting away a chunk for business growth.

Akanksha Bhatia, human resource manager at Foodpanda, said increments at the company were 30-60% this year and stock options were part of the retention strategy. The food delivery start-up that has about 1,000 employees is planning to triple headcount by the end of the year.