Tata Digital esop: Tata Digital introduces Esops for its senior executives to enhance performance

Tata Digital has introduced a new employee stock option plan (ESOP) for its senior management team as CEO Naveen Tahilyani drives a performance-oriented culture at the five-year-old Tata Group e-commerce arm, which has seen significant turnover among senior management.

The proposal was approved at the last general meeting of the company, which operates the Tata Neu super app and owns the Big Basket online grocery store and the epharmacy 1mg pharmacy.

Modern companies like Flipkart, Razorpay and Swiggy are famous for awarding Esops to their employees as an employee retention strategy as well as a wealth-building tool, promoting a culture of “personal ownership” where employees have a direct financial stake in the company’s performance.

Under the new plan, the minimum vesting period is three years, people familiar with the matter said. Employees in certain positions will have their stock options converted into company shares, while those at the director level and below will receive cash based on their options, they said.

The grant of stock options is aligned with Tata Digital’s strategic objectives of increasing revenues, enhancing customer experience through development of a user-centric fintech platform and payment gateway, and achieving profitability to attract external investors.

Reactions to the plan so far have been divided, employees say.

Tahilyani, who became the company’s managing director and CEO in February this year, has led a senior management shake-up that has seen the departure of several old hands, including Myntra founder Mukesh Bansal, who was hired by Tata Sons in 2021 to head the e-commerce venture.

Senior executives who joined the company in the last two years and have already left will likely not receive any cash incentive or share conversion options based on the stock options previously granted to them.

Meanwhile, the AGM held earlier this month also approved the appointment of Tata Sons chief financial officer Sourav Aggarwal to the board of Tata Digital.

Tata Digital did not respond to a request for comment.

Read also | Tata Digital CEO steps up cost-cutting push

Strict accountability system

According to the notice of the General Meeting of Shareholders, a new ESOP fund has been established with effect from August 16. A special committee will decide who will be granted these stock options as well as matters related to their granting.

The purpose and objective of the program is to “align the interests of employees with the interests of the company and its members, provide incentives to attract, retain and reward employees… motivating them to contribute to the growth and profitability of the company, thereby promoting their well-being,” reads the notice of the general meeting of shareholders.

Tahilyani has a strict accountability system and does not tolerate any missed targets. Although he is seen as a strict leader, he is considered to be in a unique position to steer the super app company towards achieving its business goals.

“However, we are still at an early stage and it will take at least six months before the changes take effect and tangible results appear,” said a senior executive.

“Yes, people have been informed as well. It’s still a fraction of what should be ideal for a company like this, which has received more than $2 billion in investment from its parent group to date and plans to eventually seek external funding,” said a person familiar with the terms of the Esop plan.

Tata Digital has yet to establish a unified management structure, facing ongoing challenges in integrating BigBasket and 1mg, which still operates with a startup mindset. According to sources, Tahilyani has met the founders of BigBasket and 1mg to address these issues. “The boards of both companies are now seeing increased engagement from Tata executives,” another person aware of the matter said.

ET reported on June 27 that BigBasket and 1mg had received approval from their boards to raise debt to expand and scale their existing businesses. Their existing investors are not in favor of raising equity for these businesses, the person said.

“In the case of equity funding, there has to be a price tag and the current thinking is not moving in that direction. The current investors and management are not in favour of any external investor setting the price of an asset like BigBasket,” said this person aware of the investor dynamics.

Tata Digital last invested capital in the online grocery and online pharmacy in late 2022. While BigBasket received $200 million, 1mg became a unicorn with a $41 million investment by its parent company.