MUMBAI: Suraj Kumar (name changed), a senior executive with one of the largest ecommerce companies, has spent sleepless nights with one thought: how will he encash his employee stock options (ESOPs), which contribute about 60% to his gross annual salary. As ecommerce valuations peak, senior executives in the industry are making a beeline to the offices of lawyers and human resource advisers to find ways to encash their ESOPs before valuations start melting. “Top-level talent is watchful of the valuation story and is keeping tabs on where the industry is going,” says GC Jayaprakash, executive director at RGF Executive Search. Last week, when Ontario Teachers’ Pension Fund picked up a minority stake in Snapdeal’s parent company, a lot of employees holding these stock options sold out along with an outgoing investor. In the last few years, as valuations shot up, ESOPs were the biggest bait that ecommerce companies have used to reel in senior talent. Employees were also enamored by the prospect of making big bucks as public listings seemed around the corner. But, the overhang of a valuation bubble and the lack of visibility on the IPO front have made employees cagey. Industry watchers say that prospective senior hires of top ecommerce companies are now starting to fret over the ESOP component in their compensation. Headhunters say there have been several cases where hires have hard-bargained to bring down the ESOP component and instead opted for higher weightage on payouts like variable pay, joining bonus, deferred bonus, etc. When Kishore Mehta (name changed), a senior technical expert, was offered a crore-plus compensation package by a leading ecommerce player with more than 50% coming through stock options, he asked search firm RGF Executive to lower the ESOP component in his salary. “There are a lot of cases where the candidates are questioning the valuation story of the company and working out their math on whether the value would go down in future. It is definitely a concern area,” said Anshuman Das, managing partner, Longhouse Consulting. Typically, the ESOP component in salary could vary anywhere between 30% and 70%, say search companies. On their part, companies are informally helping their employees connect with willing buyers. “Though the company cannot buy back the ESOPs, there is a secondary market available for those who want to sell,” said Amit Sinha, head of HR at Paytm. “The company issues ESOPs at rock bottom prices which are lower than the fair value of the stock. This is a way to ensure the employees are not affected in the medium term.” Ecommerce companies are also actively reaching out to compensation consultants to make sense of a situation that’s fast becoming complex. For instance, most companies now have a large brood of former employees who continue to hold stock options. As per regulatory guidelines, any company that has more than 200 shareholders has to do public filing or have to come up with an annual report. “An increasing number of employees from top ecommerce companies who get ESOPs and become shareholders and then quit leaving the company in a tricky spot. The company is bound by guidelines to issue a P&L statement,” said a compensation consultant, who is advising several top ecommerce companies on this issue. “HR in these new-age companies are not yet structured the way it is for some of the established companies,” says Anandorup Ghose, practice lead, performance & rewards at Aon Hewitt. Lawyers and compensation consultants are advising ecommerce companies to issue phantom shares and restrict stock options, something unheard of so far in the startup space. Phantom shares are non-convertible into equity and are instead used as a benchmark for cash payouts at a deferred stage. In some cases, where the promoter stake in companies have gone down significantly due to multiple round of fund raising, the investors are rewarding the promoters with huge stock options. “The concern among all investors is the extent up to which the equity base will get diluted and who takes the hit on the equity. The early-stage investors stand to lose out since recent investors come in with well-defined exit clauses,” India head of a venture capital fund said. His fund has invested in multiple ecommerce startups and is keenly watching the ESOP story play out.