Overview: A Sharp Change in ESOP Policy
In a move that has significant implications for former employees, Unacademy, the Bengaluru-based education technology company, has shortened the window to exercise vested stock options (ESOPs) to 30 days. Previously, departing employees reportedly had up to 10 years to exercise their ESOPs. The sudden change brings the rights to liquidity and potential gains for exiting staff into a compressed timeline, altering the risk-and-reward calculus of employee equity.
Why the Change Stands Out
Stock options are a common tool for startups and tech firms to attract and retain talent. They grant the holder the right to purchase company shares at a predetermined price after vesting. A decade-long exercise window is unusually generous, allowing employees to wait for favorable market conditions or corporate events to maximize value. By contrast, a 30-day window creates a near-term deadline that can pressure former employees to decide quickly, potentially forgoing long-term capital gains in exchange for immediate liquidity or to avoid continued exposure to the company’s tax and legal complexities.
Valuation Factor Behind the Decision
The company indicated that the valuation used to determine the exercise price of vested ESOPs is lower than the total capital invested. In practice, this means that even if former employees exercise, the perceived upside may be muted if the exercise price is near or above the current market value. This valuation stance can influence decisions about whether to exercise in the window, particularly for employees who left during or after a period of high growth but before broader profitability or a public listing.
Potential Impacts on Former Employees
Several outcomes are likely to emerge from the 30-day deadline:
- <strongLiquidity Pressure: Former employees must decide quickly whether to exercise, potentially hastening tax obligations and administrative steps.
- Tax Considerations: Exercising options can trigger tax events, such as the alternative minimum tax in some jurisdictions, impacting net gains.
- Opportunity Cost: A shorter window may force some to forgo exercise if liquidity is not essential or if the market value is uncertain.
- Perceived Fairness: Policy shifts can affect morale, especially among alumni who contributed to the company’s growth but are no longer on payrolls.
What This Means for Unacademy’s Talent Strategy
From a corporate perspective, shortening the ESOP exercise window can align with tighter cost management and governance practices. It may also reflect broader market comparisons where many startups offer shorter windows for post-termination exercise, or it could be part of a broader adjustment in compensation structures. For stakeholders, the move underscores the ongoing debate about how best to align employee incentives with company performance, particularly in ecosystems where exits are valued but liquidity remains uncertain.
What Employees and Alumni Should Do
Anyone affected by the new policy should review the official terms governing vested ESOPs, including the exact exercise price, tax implications, and deadlines. Consulting a financial advisor or tax professional can help determine whether exercising within 30 days optimizes net gains, or whether alternative options like waiving exercise or negotiating extensions might be feasible in future policy reviews.
Context in the Indian Tech Landscape
India’s tech market has seen a variety of ESOP practices, with some companies offering extended exercise windows and others adopting shorter post-termination periods. Unacademy’s change adds to a broader discourse about equity compensation, employee retention, and governance as startups mature and consider different capital strategies in a competitive market.
