Swiggy employees get pre-IPO cash out: Tax implications of ESOP programme

Swiggy introduces a significant $65 million Employee Stock Ownership Plan (ESOP) liquidity program, allowing employees to cash out before the company's IPO. This move, intended to boost employee morale, permits employees to sell a portion of their stock options, amounting to a total of up to $65 million.

Eligibility: Over 3,200 Swiggy employees across all levels and departments can participate. Swiggy has facilitated over Rs 1,000 crore in liquidity for employees through similar programs in the past, with this being the fifth instance.

Buyers: Other investors interested in Swiggy shares will purchase the shares sold by employees.

Valuation: The company is valued at $9.3 billion in these secondary transactions.

Sellers: Swiggy's co-founders and other employees may also sell a portion of their shares through this program.

Girish Menon, head of human resources at Swiggy, stated that rewarding employees by unlocking wealth-creation opportunities has always been a priority. This ESOP event acknowledges employee contributions and demonstrates the company's commitment to sharing its success and growth with them.

ESOP Liquidity Program: This program allows employees to convert their shares into cash, monetizing their ownership stakes. It is undertaken to recognize and reward employees' contributions, fostering a sense of ownership and long-term commitment. Companies often implement such programs before going public, as post-IPO regulations impose a lock-in period on pre-issue capital, although current employees who have been allotted shares under ESOP are exempt.

Benefits for Employees: The ESOP liquidity program provides financial gains by monetizing vested shares or stock options, offering liquidity, recognizing contributions, motivating long-term retention, and giving employees a sense of ownership. It also offers tax benefits, allows investment diversification, and promotes transparency, demonstrating the company's commitment to employee welfare and fostering a positive work environment.

For example, Swiggy's $65 million ESOP liquidity program is similar to Ola's $150 million program in 2020, which allowed eligible employees to sell a portion of their vested stock options before its planned IPO, according to Keshav Singhania, Private Client Leader at Singhania & Co.

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