The Business Times
February 7, 2023
FALLING tech valuations across Southeast Asia have dulled the attractiveness of Employee Stock Ownership Plans (Esop) for startup employees. Expectations of making a windfall from these instruments, like in Silicon Valley lore, are lukewarm in the current climate
Regional unicorns that have gone public - including Grab, GoTo Group and Bukalapak- have fallen in value amid weak market senti-ment, and there are no Esop "jack-pot" stories to excite employees. For mature startups that remain private, the prospects of doing an initial public offering (IPO) in the near term are uncertain.
Some tech workers are dissatisfied with the returns from Esop after their employers listed.
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Esop values may be impacted if employees have difficulty exercising their options and realising value from them, said Adrian Goh, the co-founder of tech jobs platform NodeFlair. "In 2022, we saw several public tech companies' market capitalisations wiped by high double-digit percentages. Coupled with layoffs, employees' outlook on the value of Esops has diminished and many prefer cash instead," he said.
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'Take an example of an employee given stock options with a set price of S$10 per share, but the current value of the company's stock is at S$8 per share. In this scenario, the employee would need to pay more than the current market value of the stock to exercise their options - making it unattractive," Goh of NodeFlair said. In cases where Esop goes underwater, he added, employees may lose motivation to continue working for the company.
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Another key aspect to be mindful of is whether the Esop comes with accelerated vesting in the event of a layoff. "For example, imagine that an employee has been granted options with a four-year vesting schedule... If the employee is laid off after two years, he would have only earned the right to exercise half of his options," said Goh. "With accelerated vesting, the employee would be able to exercise all of his options immediately upon being laid off," Goh added. "This allows the employee to realise value from the options despite not being able to continue working for the company."
