Paytm's ESOP Cost Is More Than Net Loss: Know All About ESOP's

Paytm's ESOP Cost Is More Than Net Loss: Know All About ESOP's

In FY23, the ESOP cost was Rs 1,456 crore, and the net loss was Rs 1,777 crore. This was not the case.

Vikrant DurgaleUpdated: Thursday, May 23, 2024, 02:04 PM IST
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Paytm's Net Loss is due to top brass esop's | Representative Image

The company's financial statements show that, despite recording a net loss of Rs 1,423 crore, the cost of its employee stock options (ESOP) increased slightly to Rs 1,466 crore during the fiscal year.

In FY23, the ESOP cost was Rs 1,456 crore, and the net loss was Rs 1,777 crore. This was not the case.

In its regulatory filings, Paytm also disclosed that its anticipated ESOP costs for FY25, FY26, and FY27 are Rs1174 crore, Rs558 crore, and Rs225 crore, respectively.

These numbers, however, are based on the assumption that all ESOPs granted have vesting and that no new ESOPs will be granted in the ensuing years.

In recent years, there has been much criticism directed towards new-age companies such as Paytm, Zomato, Delhivery, and others for giving large ESOP's to their top brass prior to their initial public offerings (IPOs), which has since affected the companies' profitability outlook.

What are ESOP's?

An employee benefit program known as an employee stock ownership plan allows employees to own stock in the company.

Employers often use ESOP's as a corporate finance strategy to align employee interests with shareholder interests because they offer qualified plans and various tax benefits to both the sponsoring company (the selling shareholder) and participants.

How Does ESOP Work?

ESOPs are established as trust funds; businesses can fund them with newly issued shares, cash infusions to purchase already-issued company stock, or loans made possible by the entity to purchase stock. Companies of all sizes, including several sizable publicly traded corporations, use ESOPs.

Companies can use Employee Stock Ownership Plans to keep plan participants focused on corporate performance and share price appreciation because ESOP shares are included in the employees' compensation package.

Businesses usually link plan distributions to vesting, which grants workers rights to employer-provided assets over time. Generally, employees receive a larger percentage of shares for each year of service.

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