Vijay Shekhar Sharma, the founder of Paytm, might not be qualified for stock options: Agency firm
- ByStartupStory | January 9, 2023
Vijay Shekhar Sharma, the founder and CEO of Paytm, may have received employee stock options from the company in violation of the law, claims proxy advisory firm Institutional Investor Advisory Services.
IiAS noted in a note on Friday that although Sharma isn’t a promoter—Indian slang for controlling shareholder—he has rights similar to them, including a potential permanent seat on the board.
“These provisions and structures give Vijay Shekhar Sharma ‘entrenchment’ similar to that enjoyed by promoter families in the more traditional companies,” IiAS said.
In order for Sharma to be qualified for the Employee Stock Option Plan, it was further stated that the regulator must look into his decision to reduce his direct shareholding by transferring shares to a family trust.
Stock options for promoters and directors who directly or indirectly own more than 10% of the company are prohibited by Indian law. Paytm’s 75% decline since its IPO last year has raised questions about pay, and Sharma stated in April that his stock grants would only vest after the company’s market capitalization exceeded the IPO level on a “sustained basis.”
Paytm’s spokeswoman reiterated that claim in response to the IiAS investigation, telling Bloomberg that the business had satisfied with all legal requirements in designating Sharma as a non-promoter and with the ESOP grant procedure, including shareholder approval. According to the spokeswoman, his compensation hasn’t changed since November 2020 and won’t change until 2025.
In the fiscal year that concluded in March 2022, Sharma received 21 million options valued at 9 rupees a share, or $500 million at the time. He had lost his promoter status in 2021, and before the IPO, he reduced his direct ownership to 9.1% from 14.7% by transferring shares to a family trust. Paytm, formally known as One 97 Communications Ltd., is one of several Indian businesses whose founders have not been designated as promoters, according to IiAS.
“It appears that several founders may be playing the regulatory arbitrage between the rights akin to a promoter versus the financial gains of not being classified as one,” IiAS said. “Regulations need to catch up to these structures.”
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