Flipkart's salary rejig makes employees jittery

Flipkart, India’s largest e-commerce firm, is seeing mid- and senior-level executives look out for greener pastures after the company began rationalising salaries by converting part of their variable pay to employees’ stock options (ESOPs). 

Headhunters say they have been getting calls from several executives at Flipkart for better jobs since the exercise began in September, in which as much as 40% of their variable pay was converted into stocks. 

“Flipkart is cutting salaries and has offered stocks instead. However, while the stocks offered are at a valuation of $15 billion, the actual valuation of the company will be only $7-8 billion,” said Kris Laxmikant, chairman and managing director of The Head Hunters, a Bengaluru-based executive search firm. “Due to this, a lot of employees who are in the mid- and upper mid-level management roles such as vice-president and assistant vice-president want to move out.” 

Since mid-last year, Flipkart's value has eroded by a third from a peak of $15.2 billion to as low as $9 billion following several investor markdowns. The markdowns coincided with losing ground due to a series of missteps, including splurging cash they raised from investors on high salaries, extravagant offices and discounts to customers without engaging them. At the same time, its global rival Amazon stepped up its business in India, committing $5 billion to capture the local e-commerce market. 

Jaspreet Sethi, co-founder and operating head at YoStartups, which has helped companies such as Ah! Ventures and Taxi For Sure to help build their teams, says Flipkart did the whole hiring process the wrong way, which has led to people looking out after it failed to meet expectations. 

“If you look at the history of Flipkart, for a long time their recruitment and HR activities were handled by the chief product manager. Now, these people did not have the understanding of HR activities and would offer people a lot of money,” said Sethi. “Senior guys such as Puneet Soni have quit because they come from companies like Google where there is a very strong work culture, which Flipkart failed to build.” 

Since January, Flipkart has taken corrective steps, including firing expensive hires from the Silicon Valley, rationalising costs and salaries of employees, besides focusing on improving customer service. It has seen several senior exits including that of Soni, Mukesh Bansal and Ankit Nagori. Its chief financial officer Sanjay Baweja, too, is moving out.  

In a bid to engage with employees, the firm has also expanded ESOPs to a larger pool.

“The whole thing about salary being slashed is utter nonsense. We have around 300-plus directors who are senior managers of the company. On base component, we have given an average of eight per cent increase. Around 20 per cent of the salary is bonus. What we have done this year is, instead of paying all of that in cash, we have paid a part of it in stocks. For roughly 40 per cent of the bonus, we have paid the directors one-and-a-half times the stock,” said Nitin Seth, chief administrative officer at Flipkart.

Seth says the reason for doing so is to vest employees into the company for a longer term. “The task of building Flipkart or a large e-commerce company is not a 12-month thing; it is something which takes time. E-commerce is still 2-2.5 per cent of overall retail. This is going to take at least 5-10 years to really grow and we want people to be tied in for that.” 

Earlier, the company was giving stock options to 10 per cent of its staff. Seth said replacement of bonus with stock options was done at 40 per cent for senior level and 30-35 per cent for mid level.