Stock Options
25% of Netcore is owned by past and present employees – some as shareholders, and others as option holders. This is perhaps one of the most liberal ESOP programs any company has. It is a choice I made about 12 years ago.
Stock options have always been a good way to attract talent. In India, the rules governing options are not as simple, transparent and employee-friendly as they are in the US. But companies can still use stock options as a magnet for talent.
While Netcore has had an ESOP program for a long time, one of the challenges was that employees did not see any liquidity. We did not raise any external capital so a secondary offering of shares was not possible. We have also not sold or listed Netcore. So stock options have been illiquid for employees. And over time, they became a piece of paper that was not valued by recipients.
So, last year we decided to do partial buyback which provided liquidity to many past and present employees. We used the profits of the company to do the buyback. (I complemented that with some direct purchase from my family company.) Early employees saw extraordinary returns, and this reinforced the feeling among present employees that stock options did indeed have value.
Stock options are a very good way to align interests. They can be a good reward and motivation mechanism for employees. Each year, I set the price – based on what I think the business is worth, which in turn is driven by inputs I have had from conversations with potential external investors and market inputs. It may not be the most scientific way to do it, but it is still a good way to show people the value of what they have.
I have said it in company meetings that over the long-term, it is the stock options that will deliver huge financial gains for every one of the holders. I do hope I can do that in the years to come.
Will be continued soon.
