When it comes to stock grants at IPO-bound firms, tech heads take the cake

MUMBAI : IPO-bound companies have been generously rewarding their technology heads with more stock options than other function heads, a Deloitte study shared exclusively with Mint shows, underscoring their importance at a time when businesses are accelerating their digital transformation. Chief technology officers (CTOs) have received the highest amounts of stock grants after managing directors and chief executive officers (CEOs), and have even beaten chief operating officers (COOs) or the chief financial officers (CFOs). These rewards are offered to retain key talent in the run-up to a public listing and thereafter, and employee stock ownership plan (Esop) pools in these companies expanded fourteen-fold in the past three years, data shows. “The importance of CTOs has been rising with more and more digital-first businesses listing and traditional-businesses enhancing their digital transformation journeys. Technology doesn’t just serve as an enabler but is a core driver of profitable scale, security, customer experience, and ultimately, value," said Dinkar Pawan, director, Deloitte India. Pawan leads the executive performance and rewards practice at the consulting firm. In a sign of heightened importance of CTOs, Pawan pointed out that in roadshows for investments, these executives often sit alongside CEOs and other critical CXOs to inspire investor confidence. Also Read | SEBI proposes relaxed norms for large IPOs, steps up crackdown on unregistered financial influencers Deloitte studied 60 companies that went public in the last three fiscal years (FY23, FY24, FY25) on the long-term incentives that they offered to their employees and top management. The study named ‘India’s Pre-IPO Long Term Incentives (LTI) Trends’ found out that CTOs received 39% of the equity grant that a CEO/MD got, compared to a chief human resources officer (CHRO), who got just 14%. For companies that went for an IPO in FY23, the median size of the Esop pool was ₹102 crore, and for those that went public in FY25, the median size swelled to ₹1,503 crore. For each year, Deloitte studied 20 companies and the value of the Esop pool increased because the size of the IPOs became large. In fact, the CTO eclipsed the COO and the CFO, who got 35% and 30%, respectively, of the Esop grants that the MD/CEO received. “The CTO plays a pivotal role in shaping a company’s long-term competitiveness, especially with the rapid evolution of AI. A strong CTO ensures that the product and technology stay differentiated and future-ready. Strong CTOs are a rare breed, and retaining them through meaningful stock options is critical for sustaining innovation and investor confidence," said Alok Goyal, partner at homegrown venture capital firm Stellaris. The discrepancy in value creation opportunities between the MD/CEO and the rest of the CXOs are pretty stark. If the former made ₹37 crore in FY25 through grants as his/her firm went public, then the CXOs of the firm (CTO, CFO, CHRO, COO or business unit heads) made ₹9 crore. The equity grant could be in terms of employee stock options, restricted stock units, long-term incentive options etc. Headhunters have noted the rise in demand for CTOs, but cautioned that the power of technology heads may dim going ahead. With the capital markets deepening, India has seen a deluge of public listings. After the windfall of calendar 2021 which saw 47 initial public offerings raking in ₹1.03 trillion, sentiment dipped in CY 2022 and CY 2023, with 38 IPOs mopping up ₹58,978 crore and 59 IPOs raising ₹49,758 crore, data compiled by Mint shows. However, 2024 saw a rebound, where 90 IPOs raised ₹1.59 trillion. So far this year, more than ₹75,000 crore has been raised via IPOs. In most new-age tech startups, a bulk of their employee cost is tilted towards the tech team. Only in product companies, the chief marketing officer (CMO) and other roles play equally critical part. Quite often, one of the co-founders plays the role of a CTO and the other co-founders either become CEOs or COOs. No wonder then that most early-stage companies struggle to find the right talent for technology roles. “CTO hiring is highly specialised and demanding as good CTOs are always sitting on multiple opportunities irrespective of the state of tech market. They are the rainmakers of today to create an excellent digital product and hence the biggest beneficiaries of any LTIP (long-term incentive plan) companies offer at the C-suite ahead of their peers in other functions. CTO hiring can take 5-6 months, which is common across CXO level, but what stands out is that equity grants sometimes take their compensations to 60-70% higher," says Pranshu Upadhyay, regional director for talent search firm Michael Page. “This is the reason why CTOs are drawn to companies having an IPO event on horizon. This gives them a monetisation opportunity than working for a start-up where their LTIP is largely notional," he adds. Finance function, too, is in demand at IPO-bound companies and CFOs are now getting rewarded through LTIP at the time of hiring and for retention thereafter. “Since the pandemic, the CTOs were exponentially in demand and, thus, were looking at 100% raise as all companies were becoming tech-driven. However, going ahead, that demand will moderate since companies are being more prudent. On the other hand, the role of a CFO will rarely dip because for any company heading for an IPO, the CFO plays the most critical role after that of the founder or CEO," said Monica Agrawal, managing director—financial services and board and CEO services for search firm Korn Ferry in India.