Toplyne ESOPs 101
At Toplyne, we believe in creating an ESOP Plan that enables employees to create meaningful long-term wealth aligned with the growth of the company.
Recognize, retain, and motivate our employees to drive long-term performance and business results by offering awards linked to company performance that vest over time.
1. Who are ESOPs allocated to?
- Allocated at the time of hiring to attract the top talent to Toplyne.
- Internal grants to our top performers who show a strong promise of commitment/potential and have created disproportionate value for Toplyne.
2. What is an option?
An individual unit of ESOP is called an option. The price of the option is determined by the latest valuation of the company as of the grant date. One option would typically convert into one share upon fulfillment of prescribed conditions.
E.g. Suppose you have been allocated ESOP worth USD 10,000. The worth of each option is USD 1,000 which means you will receive (10,000 / 1,000) = 10 options
3. What is a grant date?
The grant date is the date on which you are allocated your ESOP. This is the date from which vesting begins.
i) New hires receive their ESOP on the day they join Toplyne.
ii) For existing employees, ESOPs are effective as mentioned in the grant letter. The ESOPs will be allocated on the latest available share price as per the latest funding round at the date of grant.
4. What does vesting mean?
Share vesting refers to the transfer of ownership of a financial instrument. If a company has set aside a certain number of ESOP grants for you, it stipulates that certain conditions have to be met before these ESOPs are assigned to you as per the conditions mentioned in the employee stock option agreement.
Put simply, you don’t own the ESOP at the time of grant. As you complete each milestone (1 year, 2 years, 3 years etc.) you vest 25% of that stock grant each year. Toplyne follows a four-year vesting schedule with 25% stocks vesting at the end of each successive year. At the end of four years from the grant date, your ESOP is fully vested and you have full ownership of those options.
5. What happens to my ESOPs or Shares when I leave the company?
The vesting will continue till the last day of an employee’s active employment with Toplyne. All ESOPs vested up to the date of exit remain as ESOPs earned by the employee.
What differentiates us:
Toplyne allows ex-employees an indefinite exercise period on their ESOPs and there is no price/minimal price for exercising.
The reason for this is to make our ESOP policy extremely employee-friendly. Many organizations force ex-employees to exercise their ESOPs within a stipulated period post-employment (6 - 18 months) regardless of a liquidity event in sight. What this means is that an employee will have to pay the exercise amount to retain ownership of those vested stocks without any guarantee of them ever being converted to cash.
Because of this clause, we have seen many employees forgoing the ESOPs they would have earned (working for years with a particular employer). Or paying huge amounts - often in the hundred of thousands - to exercise ESOPs which never get converted to cash (loss liability).
6. What do you mean by exercising stock options?
Exercising stock options means purchasing shares of the company at the exercise price defined in your grant (Exercise Price is Zero in the case of Toplyne)
7. How do I exercise my ESOPs? How do I derive value from my ESOP rewards?
This can be done in the case of a liquidity event where you can sell (all or part of) your vested ESOP to another buyer for cash. There are three ways this can happen:
1. In the event of an IPO: Post which, stocks of publicly listed companies can be traded on the stock exchange (i.e you would get public stock which you could sell in the market - note there may be restrictions on how much you can sell and when)
2. Company buy back: When the company creates an option to buy (a % of ) employee ESOPs at a predetermined price.
3. Secondary sale: When an investor chooses to buy company stocks from its employees at a predetermined price.
All the above scenarios apply to current and ex-employees.