Challenges in Granting ESOPs to Gig Workers

Of late, we have been handling a lot of queries from companies on the structuring of ESOPs for their employees. Fundamentally, ESOPs are planned for retaining and remunerating the talent. This is a great tool particularly for the start-ups, who are cash starve. Web aggregators/ platform based companies do not engage the workforce on the conventional employer-employee model. They are basically treated as contractual workers and the new labour codes also recognises it. Valuation of these new age companies also dependent on the quality of services rendered by the contractual workers and their adoptability by the users.

Retention of the gig workers and remunerating them and thereby maintaining their loyalty is a challenge. While so, it is also an issue even to the companies dependent on the distribution channels involved in distribution of the products, to remunerate them.

Let us look at certain challenges of granting stocks options, which has been attempted below:

• One of the key challenges is that the gig workers are not destined to work permanently. Majority of these contractual workers are taking up the gig employment only as a method to build a gap before they take up a more stabilised employment and absorbed in the organised work stream. Naturally, the attrition rate is high.??
• Majority of the gig force belongs to the lower income group and may not be well educated, except edtech platforms. So, creating an awareness among them about the stock options and how it is going to be beneficial to them in the long run could be a challenge. They often tend to reckon only a benefit that comes into their hand instantly.?
• Identification of gig workers is another challenge. The work profile of gig worker is monitored through the app without having a physical interaction. A gig worker can be at times simultaneously working for different platforms, weighing in on the benefits.
• Defining the metrics and the eligibility criteria for granting options can be another implementational challenge.?
• Inspite of having such a large gig force, there is no specific regulatory framework largely because they are not employees and terms of their engagement are driven by the contract. The new labour codes attempt to recognise them and provide certain health, insurance and other benefits. Both the Companies Act and SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 recognise granting ESOPs/ share based incentives to the employees. 2021 Regulations of SEBI replacing the earlier regulations, have dropped the term “permanent” from the definition of the term “employee”, thereby broadening it. However, it may not still be extendable to gig workers.??????

The above challenges only gave scope for bringing in innovative solutions and companies like Unacademy have introduced a Teachers Stock Option Plan (TSOP) to remunerate their educators on its platform and the home service professional’s aggregator, Urban Company offers Partner Stock Ownership Plan (PSOP) to benefit the partners. Interestingly, Urban Company’s plan is termed as stock ‘ownership’ plan.

Companies may explore newer ways and means to implement these plans like should there be any possibility for competitors like Ola and Uber, Swiggy and Zomato to come together and offer shared benefits, since they share common partners most of the times? Some food for innovation!

This article is authored by Mr. Noorul Hassan , Partner.