The Pre-IPO stage, typically 3 to 4 years before going public, is a critical period for any company. The people you bring on board and the decisions you make during this time will shape your company's trajectory for years to come. Equity compensation at this stage is crucial for attracting and retaining talent while laying the foundation for your company’s post-IPO compensation plan.

In our last instalment of the Pre-IPO Guide to ESOPs, we explored the timing for launching your ESOP plan. Now, let’s focus on the next step - determining whom to grant ESOPs. Here’s what we recommend:

Do a selective grant
  • - A selective ESOP Program at this stage ensures targeted impact, focusing on key contributors to the IPO process. It also helps create meaningful wealth for these individuals, driving better focus, alignment, and retention.
Cover the following employees / roles

Focus on aligningthe employees who will steer the Company through the IPO. This typically includes:

  • - C-Suite / Leadership;
  • - Senior Management;
  • - Future leaders (high performing mid-level employees critical to execution and strategic direction).
Save something for the future
  • - Allocate a portion of the ESOP pool for strategic hires—individuals who may be onboarded in the lead-up to the IPO. This ensures flexibility for attracting top talent and filling key roles that may emerge later

Allocating ESOPs to these key groups ensures they remain deeply invested in the company’s success and motivated throughout the IPO process. At the same time, this approach helps manage dilution and keep the financial impact on your income statement within acceptable levels - a careful balance required as the company prepares to go public.

Should you have any comments or thoughts or feedback, please feel free to share write to us. We would love to hear from you!

Vichitra Malhotra, FIAI

Founder and Consulting Actuary

v.malhotra@veritas-india.com

+91-9372876627








 

Disclaimer: The content is for informational purposes only and must not be reproduced, redistributed, or construed as a recommendation. It does not constitute advice on employee stock option solutions, valuations, or scheme preferences. We have reviewed the above and in so far as it includes information or facts, it is believed to be reliable though its accuracy or completeness cannot be guaranteed.