Why ESOPs matter
Early talent often joins for below-market cash in exchange for ownership. A well-designed ESOP aligns the team with long-term value creation and helps you compete with larger employers.
Key design decisions
- Pool size: 8–15% is common at seed; investors often ask for top-ups each round.
- Vesting: usually 4 years with a 1-year cliff.
- Strike price: the price employees pay to exercise; set fairly at grant.
- Exercise window: how long after leaving employees can exercise — longer windows are founder-friendly.
The tax reality in India
ESOPs are taxed at two points: as a perquisite at exercise (on the spread), and as capital gains at sale. Eligible DPIIT-recognised startups get to defer the perquisite tax, easing the cash crunch for employees.
An ESOP only motivates if people understand it. Pair every grant with a one-page explainer of value, vesting and tax.
Need help putting this into action? Book a free 15-minute call with a Vaishnav Catalyst specialist.