Zero to Infinity
22: Structuring incentive plans – ESOP, Cash and Balanced Scorecard
Jul 9, 2019
Avnish Bajaj, Founder & MD of Matrix Partners India, offers insightful strategies for structuring employee incentive plans crucial for early-stage startups. He discusses the balance between ESOPs and cash, providing thumb rules for determining equity at various stages. The conversation dives into the creation of effective ESOPs, emphasizing the importance of equity valuation and aligning performance indicators with compensation. Bajaj also shares industry examples, making complex concepts accessible and practical for motivated teams.
16:26
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Quick takeaways
- Balancing Employee Stock Ownership Plans (ESOPs) and cash compensation is crucial for attracting and retaining talent in startups.
- A structured approach to equity distribution simplifies valuation for new hires, fostering understanding of potential financial benefits.
Deep dives
ESOP vs. Cash Compensation
Understanding the balance between Employee Stock Ownership Plans (ESOPs) and cash compensation is crucial for startups. Founders often face the challenge of attracting talent while managing budgets, and offering equity can significantly enhance the appeal of a position. The shift in employee perspective toward valuing equity over cash is evident, especially after successful exits, like Flipkart's, where many employees became wealthy through stock options. To effectively structure compensation, founders need to consider offering equity as a significant part of the total compensation package, translating to multiples of an employee's current compensation.
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