 "Paytm")
It hasn’t been an easing going for startups in the public markets. After Zomato and Nykaa, One97 Communications has become the latest new-age company to face shareholder dissent on employee stock option plans (ESOPs).
The three resolutions pertaining to ESOPs put to vote by the digital payments major got over two-third ‘against’ votes from institutional investors, shows a stock exchange disclosure made by the company.
In September 2021, Zomato had received over 60 per cent against votes from public institutions on various resolutions pertaining to ESOPs. It had also faced opposition from institutional investors on a resolution seeking their approval on amending its articles of association (AoA). Earlier this month, Nykaa’s resolution to amend its AoA got close to 80 per cent against votes from institutions. While its resolutions pertaining to ESOP schemes got close to 4 per cent against vote.
All the resolutions floated by the three firms got passed comfortably thanks to votes from non-public institutions and promoters. However, the trend shows a wedge between new-age firms —which have so far relied on private money—and public investors.
"At the end of the day, the overall governance of these companies needs a closer look. The way new-age companies behave in public markets has to be different from the way they behaved in the private market. There will be much deeper scrutiny from public investors. They have a long way to go to meet the best governance standards," said Shriram Subramanian, founder and managing director of InGovern.
Experts say the bone of contention is the deep discount being offered by these firms on their ESOPs.
Voting advisory firm IIAS had recommended ‘against’ votes on the three Paytm resolutions.
“We do not favour ESOP schemes where there is no clarity on the exercise price, or the options are granted at a significant discount to the market price. ESOPs are ‘pay at risk’ options that employees accept at the time of grant, which is protected if the ESOPs are issued at a significant discount to the market price,” said IIAS in its voting advisory note.
The firm also had voiced concerns with Paytm CEO Vijay Shekhar Sharma getting the lion’s share of the ESOP poll. “About 46.5% of the entire pool was granted to Vijay Shekhar Sharma: we believe that skewing the grant of stock options to a single person is not optimal use of the stock option scheme,” it said.
Replying to a query sent by Business Standard, a Paytm spokesperson said, “ESOPs are granted to key employees in order to reward and retain them. Today, we have a diluted share count of about 695 million shares, including a granted ESOP pool of 31 million options. Our ESOP resolutions have been approved by shareholders with a total of over 92% votes in favour of the same. This creates a sense of ownership, drives participation, and also leads to wealth creation for the employees.”
