MUMBAI: In a first by an Indian e-commerce company, Flip kart has sold a marginal stake worth Rs 180-240 crore in its employee trust fund to high net worth individuals in the past few weeks. The move was aimed at talent retention by the eight year old firm, according to people aware of the transaction.
Such a move gives employees holding stock options an avenue to monetize them something they normally wouldn’t be able to do in absence of a listing. “At Flip kart, we believe the reason for our remarkable growth has been our people who have demonstrated immense ownership and have consistently gone way beyond the call of duty,” a company spokesperson said in an email to ET.
“The employee trust is a structure to facilitate employee liquidity across all levels depending on the amount of vested options. This is a repeatable structure and we do intend to use it as we go along at least on an annual basis,” the spokesperson added.
Flip kart, India’s largest e-commerce company, has raised more than $3.4 billion from global investors such as New York-based Tiger Global and Stead view Capital and was valued at $15 billion in the last round of funding.
The e-commerce boom has seen companies battling to hire and retain qualified staff. This has intensified with big business entering the sector. They include the Tata Group, Reliance Industries, Aditya Birla Group and RPG Enterprises, all of which have taken on employees from incumbent companies.
Employee stock options, or Esops, can range from 30% to as much as 70% of compensation. Listed and unlisted companies in India have employee trusts that are used as a way of rewarding staff. India’s largest unlisted infrastructure financing company ILFS Group has the ILFS Employees Trust, which owns a 13% stake in the company. India’s largest engineering company Larsen & Turbo Ltd has an employee trust fund that owns a 17% stake in the company. The dividend that accrues is used for the welfare of employees. It can also serve as a defence against takeover attempts.
“A trust fund is fairly common amongst both listed and unlisted companies,” said Anandorup Ghose, partner, Aon Hewitt India. “For e-commerce firms, selling shares of a trust fund is a retention method because this helps employees unlock value of their Esops. This gives them a chance to liquidate their shares and can be accessible to employees across categories.”
The $17-billion e-commerce industry in India is expected to grow to $50 billion by 2020. It’s one of the leading recruiters from the Indian Institutes of Technology and Management (IITs and IIMs) and is expected to create a total of more than 50,000 jobs in the next few years. However, monthly attrition rates of 15-20% in junior and middle management means companies need to keep refilling posts all the time.
Last week, ET reported that Flip kart India, which runs the wholesale arm of the country’s India’s largest e-commerce company, posted a threefold increase in revenue in fiscal 2015, reflecting the rapid growth of the country’s online retail sector.
Singapore-registered Flip kart has multiple companies within its fold, including Flip kart Internet, Flip kart Logistics, Flip kart Digital and Flip kart Online.