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Caution Rules

E-commerce companies are now more conscious than ever about employee benefits.

When the Walmart-Flipkart deal was announced in May, there was talk of how it would make 3,000-odd current and former employees of Flipkart millionaires. These employees - mostly from the Flipkart team of 2009 - had been given stock options as part of the compensation package. Founder Binny Bansal announced 100 per cent buyback of employee stock options (ESOPs) at the employee town-hall after the deal. The privileged list included Ananth Narayan, CEO of Myntra and Jabong; Mekin Maheshwari, former HR Head; and Sameer Nigam, Founder and CEO of PhonePe, the payment arm of Flipkart.

However, the real rags-to-riches story was that of Ambur Iyyapa, the first employee of Flipkart. Iyyapa, who had joined as a logistics manager (currently, Associate Director, Customer Experience Management) at Rs8,000 a month was also offered ESOPs. His net worth now is a neat $1 million.

The dream run of Flipkart employees, especially Iyyapa - who started off as a courier delivery boy - has revived among B-school graduates the romance of working in e-commerce companies. In early 2014, e-commerce companies got Day 1 slots on leading B-school campuses. Being part of an e-commerce company's growth story was the obvious choice of job seekers and traditional favourites such as Unilever, Nestle and private banks were out. The reason was the wealth-creation proposition - in the form of ESOPs - that even the smallest of e-commerce start-ups offered to entry-level candidates. The fad ebbed by mid-2016 when many e-commerce companies were cash strapped as investors refused to fund them any longer. Sunil Goel, MD of executive hiring firm, GlobalHunt, says e-commerce salaries dipped in 2016/17 when many enterprises shut shop. "Most companies who struggled had founder CEOs. Some took pay cuts to focus on reviving the business." That's when there was a reverse trend from e-commerce back to traditional companies, says Utpal Das, Client Director at executive search firm EMA-Partners.

Salary Structure

Nearly 30 per cent of CEO compensation is fixed pay, while the rest is bonuses and equity rewards. Typically, CEO compensation is determined by 3 Ps - pay for position, pay for person and pay for performance. "While there exists a well-defined pay for position in established industries, in e-commerce, given the industry dynamics, pay for person and pay for performance factors are seen as more relevant," says Debasmita Das, Principal India Hitech Industry Lead at global consulting firm Mercer.

For a hired CEO, the compensation will be a mix of fixed income, performance-oriented bonus and ESOPs, says Ambareesh Murty, Founder and CEO, Pepperfry. "However, for founder CEOs, while s/he has fixed income and performance-oriented incentives, the percentage of ownership is high and determines wealth creation," says Murthy, who was country manager at Ebay before setting up Pepperfry.

Deepti Varma, Director HR, Amazon, says Amazon's compensation philosophy and strategy are built on the foundation of leadership principles, one of which is Ownership. "Leaders are owners. They think long-term. We reinforce this commitment to ownership through the structure of our compensation programme. Our goal is to attract, motivate and retain the high caliber employees."

Another trend is the larger share of long-term incentives (LTIs). "The pay mix will have more variability with LTIs having a larger share in total compensation," says Das of Mercer. "The personal competence of the CEO determines base compensation. This includes taking an idea off the ground, getting funding, scaling up and running a profitable business." An aggressive LTI serves the dual purpose of rewarding for performance and driving wealth creation, says Das.

According to Anuradha Parthasarathy, founder of California-based executive hiring firm AnuPartha, equities are helping companies hold on to CEOs. "Earlier, even big retail chains could not hold their top guys," she says.

For a start-up in which the majority of work is done by co-founders themselves, sweat equity sounds pragmatic. The 'ownership for play' model is said to be working well in the early stages. "Equities are one of the biggest hope of e-commerce CEOs," says Ashish Goel, Founder-CEO of Urban Ladder. Says Vishwavijay Singh, Co-Founder and CEO of Ahmedabad-based e-commerce company "Flipkart has proved that if you are in the right company in the e-commerce space, it is a very good way of creating wealth in future." The company recently filed for an IPO with BSEs SME platform.

Cautious Hiring

However, stories such as that of Iyyapa are far and few today. E-commerce companies are not giving blanket ESOPs to all staff members. Neither are fixed salaries of employees, including CEOs, unimaginably high. The salary of a CEO of an e-commerce company, says N. Shivakumar, Business Head, TeamLease Services, can be anywhere between Rs1.5 crore and Rs3 crore (excluding ESOPs and other variables) even for a mid-sized company. This is by no means small, but e-commerce CEO salaries during the boom were in the region of Rs6-7 crore. HR experts say are still doling out stock options to CEOs and senior management on the basis of the valuation of the company.

However, when it comes to mid-management, e-commerce companies are far more cautious than before. Today, they offer ESOPs to only those who are in critical functions such as analytics or technology. HR, legal and finance, too, command a premium. T. Murlidharan, Chairman, TMI Group, expects further consolidation and expects manpower demand to be restricted to the top one or two players in each category. "The top players will get funded and they will pay whatever it takes to acquire or retain talent at the top. So, the offer and demand would be company specific and at senior levels for critical talent estimates are that it could range from anywhere between Rs70 lakh and Rs2 crore."

Murlidharan's reading is that e-commerce companies will be conservative in offers for managerial talent. "The top players in each category will see aggressive funding. This will lead to aggressive positioning, leading to a wipe-out of the bottom players. The managerial team from the bottom players will be available. So, fresh hiring will be restricted to top two or three players."

S. Raghunath, Professor, Corporate Strategy, Indian Institute of Management, Bangalore, says, "The growth in online fashion, food and groceries will continue and niche e-commerce sites will surface in such categories. Therefore, jobs linked to these sites will continue to expand and grow as brick and mortar businesses seamlessly begin to link with their online presence."

E-commerce majors may be back on the priority list of B-school graduates seeking jobs but companies have become far more choosy. Siddharth Arora, an alumnus of Indian School of Business (ISB), joined a leading e-commerce market place after passing out in 2014. He claims that almost every third person from his batch was hired by an e-commerce company, but that isn't the case any longer. "Companies are more selective today but even then the right people are still able to find the roles they are looking for." Arora claims that while the entry-level salary for a MBA continues to be around Rs35 lakh, the number of candidates getting hired has certainly been rationalised.

"There was a peak of inflated expectations in 2012/14, followed by a drop. However, now I think we are ascending the slope of enlightenment and will soon reach the plateau of productivity in next couple of years. The entry of the big retail giant like Walmart is evidence of the fact that the market has become more mature," says Abbasali Gabula, Associate Director, External Relations at SPJIMR

A recent report by Morgan Stanley forecasts that India's e-commerce market will grow at a CAGR of 30 per cent to reach $200 billion by 2026. But there is certainly a lot more caution being exercised by e-commerce companies in terms of the kind of people they hire and also the kind of compensation packages they offer.