Tata Digital has launched a new employee stock option plan (ESOP) for its senior executives. This move by Chief Executive Naveen Tahilyani aims to foster a performance-driven culture at the five-year-old Tata Group ecommerce division, which has experienced considerable turnover among its senior leadership.
ESOP Approved at AGM:
The proposal received approval at the company’s latest annual general meeting. This company manages the Tata Neu superapp and owns Big Basket, the online grocer, as well as the e-pharmacy 1mg.
New-age companies such as Flipkart, Razorpay, and Swiggy use ESOPs as both a retention strategy and a wealth creation tool. This approach fosters a ‘skin-in-the-game’ culture, giving employees a direct financial stake in the company’s performance.
Minimum Vesting Period of Three Years:
According to sources, the new plan features a minimum vesting period of three years. Employees at specific grades will see their stock options converted into company shares, while those at the director level and below will receive cash based on the options they hold.
The allocation of stock options aligns with Tata Digital’s strategic objectives of boosting revenue, improving consumer experience by developing a user-focused fintech platform and payment gateway, and achieving profitability to attract external investors.
So far, employees’ reactions to the plan have been mixed, they noted.
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Tahilyani, who assumed the roles of managing director and chief executive in February this year, has been revamping the senior management team. This overhaul has included several departures from the previous leadership, such as Myntra founder Mukesh Bansal, who was hired by Tata Sons in 2021 to lead the ecommerce venture.
Senior executives who joined the company over the past two years and have since departed are unlikely to receive any cash incentives or have their previously issued stock options converted into shares.
Earlier this month, the AGM also approved the appointment of Tata Sons Chief Financial Officer Sourav Aggarwal to the Tata Digital board.
Tata Digital did not reply to an email request for comment.
The AGM notice states that the new ESOP came into effect on August 16. A special committee will determine the recipients of these stock options and oversee matters related to their vesting.
The scheme aims to “align the interests of employees with those of the company and its members, providing an incentive to attract, retain, and reward employees … motivating them to contribute to the company’s growth and profitability, thereby promoting their welfare,” according to the AGM notice.
Tahilyani is implementing a strict accountability system with zero tolerance for missed deliverables. Though regarded as a tough leader, he is seen as uniquely qualified to steer the superapp company towards meeting its business objectives.
“These are still early days, and it will take at least six months for the changes to take effect and yield tangible results,” said a senior executive.
“Yes, employees have been informed as well. However, the ESOP allocation is still a fraction of what it ideally should be for a company of this scale, which has received over $2 billion in investments from the parent group and plans to seek external funding in the future,” said a person familiar with the ESOP plan’s terms.
Tata Digital has yet to establish a unified management structure and continues to face challenges in integrating BigBasket and 1mg, both of which still operate with a startup mentality. Sources indicate that Tahilyani has met with the founders of BigBasket and 1mg to address these issues. “Tata executives are now more involved in the boards of these two companies,” said another person familiar with the situation.
It was reported in June that BigBasket and 1mg secured approval from their boards to raise debt for expansion and scaling up their existing businesses. A source indicated that their current investors are not in favour of raising equity capital for these ventures.
“For equity funding, a price needs to be set, and the current sentiment does not support that. Both existing investors and management are opposed to having any external investor determine the value of assets like BigBasket,” said a person familiar with the investor dynamics.
Tata Digital last injected capital into the online grocer and e-pharmacy in late 2022. BigBasket received $200 million, while 1mg achieved unicorn status with a $41 million investment from the parent company.
