Flipkart starts crediting $700 million one-time payout to employees
It is Big 'Million' Day at Flipkart. Not for the customers but for employees. The e-commerce giant has started the much-anticipated $700 million payout to employees. The company is compensating staffers for the devaluation of Flipkart's shares resulting from the split of PhonePe. The one-time discretionary payment is the largest of its kind in India's start-up ecosystem.
Why does this story matter?
PhonePe was part of Flipkart from 2016 to 2022. In 2022, the companies announced full ownership separation. This was done to allow PhonePe to grow as a successful entity in its own right. The split, however, led to Flipkart losing its valuation. The massive payout is a reflection of the value PhonePe had within Flipkart. PhonePe has ventured into e-commerce since the split.
The payout is part of ESOP buyback
In December last year, Flipkart announced its decision to buy back employee stock options (ESOPs) worth $700 million from its staffers. According to estimates, 19,000 former and current employees are eligible for the payout. Several former employees have already received their share. They are being paid at $43.67 per option, reflecting the increase in PhonePe's valuation after the split.
Flipkart's shares lost value after split
Flipkart sold its entire shareholding in PhonePe. The deal was structured in such a way that allowed shareholders of both companies to purchase shares in PhonePe. At the time, both companies were based in Singapore. Since the split, PhonePe moved its headquarters to India. Before the separation, Flipkart's share price was $189.1 per option. It became $165.83 per option after the hive-off.
Company will prioritize employees that spent longer at Flipkart
"...I am delighted to inform you that the much-awaited compensation will be made today, July 14, 2023. You will receive the details of your individual payout by the following week," Flipkart CEO Kalyan Krishnamurthy told employees in an internal email. Per Moneycontrol, the company will prioritize employees who spent a long time at Flipkart instead of senior management.
Flipkart and PhonePe are slowly becoming competitors
Flipkart and PhonePe have continued to be among the market leaders in their respective spheres. However, PhonePe's interest in India's Open Network for Digital Commerce (ONDC) has put them on a collision course. Meanwhile, Flipkart has enhanced its presence in the payment sector with a new personal loan offering. Walmart, the parent of both firms, expects them to become $100 billion businesses.
