Queries to pose to HR during ESOPs negotiation?

When negotiating ESOPs (Employee Stock Ownership Plans) with an HR representative, it's essential to ask the right questions to ensure that you understand the terms and conditions of the plan fully. Here are some important questions to consider:

1.    What percentage of the company's ownership will the ESOP represent?

2.    How long will it take for the ESOP to fully vest? 

·      do they start vesting immediately, or after some time

·      are they straight line or staggered in vesting with more vesting later in the vesting period

·      monthly or quarterly or annually - and if the cliff is more than one year

3.    Will there be any performance metrics or milestones that need to be achieved before vesting occurs?

4.    How will the value of the ESOP be determined?  

·      how many units in total

·      what percentage of the cap table

·      total market value as on date

·      multiple of the in-hand salary

5.      Do you have an ESOP policy?

·      is it just a verbal promise or in writing, and approved by the Board

·      seek a copy to go through it in detail, and ask a CA/Lawyer in case of a confusing clause 

·      keep a copy to refer later when you may need to

6.    How will my ESOPs be given to me?

 

·      verbal promise or email or through a Grant Letter

·      verbal promises change but a Grant Letter with a Board approved policy may be more robust

 

7.    What is the price at which I get my ESOPs? 

 

·      face value or discount to the current valuation

·      at what discount

·      how much will I have to shell out in cash while exercising

·      what will be the TDS and tax impact on exercising

8.    What are the Exit Clauses?

 

·      will I have to mandatorily exercise in a few months after resignation

·      is there any accelerated vesting of unvested ESOPs on liquidation / acquisition

·      has there been any buy back of ESOPs in the past

 

9.    What happens to the ESOP if the company is acquired or goes public?

10. Can the ESOP be transferred or sold?

11. What are the tax implications of participating in the ESOP?

12. Are there any restrictions on when the ESOP can be exercised or sold?

13. What happens if the employee leaves the company before the ESOP fully vests?

14. What are the risks associated with investing in the ESOP, and how can those risks be mitigated? 

 

Remember that ESOPs are complex financial instruments, and it's crucial to fully understand the terms and conditions before accepting an offer. Don't hesitate to ask questions and seek professional advice if necessary.