ESOPs after exit: the executive left, his equity stayed

The executive left after 18 months. His equity stayed for years.

A board approved giving a slice of ownership to a senior executive they wanted to hire. A Rs. 300 crore business, growing fast, needed a proven leader for a new division. The man wanted ownership, not just salary. The board agreed to give him ESOPs, shares he would earn over time, worth about 3 percent of the company. It was approved in a single meeting. Everyone felt good about it. A strong hire, properly rewarded.

Eighteen months later, he and the company parted ways. There was no bad blood, the fit had simply been wrong.

But by then he had already earned a large chunk of that ownership. The board had set easy terms so he could earn it quickly, because they wanted to show they were serious about him. Nobody in that meeting had asked one simple question. What happens to this ownership if he leaves.

He moved on, but his shares stayed exactly where they were. A man no longer working there now owned a real piece of the company.

Two years later it became a problem. The company tried to raise fresh money from a new investor. The investor wanted clean ownership, everyone on the list of owners actually involved in running the business. The former executive’s shares, now worth several crore, sat right in the middle. He was under no obligation to sell, and every reason to wait for a better price. The deal dragged for months and was repriced before it closed.

A board will spend an hour deciding whether the shares are enough to attract someone. It will spend no time on what those shares become the day that person walks out.

The fix is not complicated, and it is not about being stingy. Before any equity is granted, the board should ask one question and write the answer into the terms. If this person leaves, what happens to what they have earned, who can buy it back, and at what price. That single clause, agreed at the start, is the difference between a reward and a problem.

Shares are easy to give. They are almost impossible to take back, unless you decide how to take them back before you give them.