'Just salary is not going to create wealth': Ex-Zomato top executive says his ESOPs jumped 12-14x

Zomato's former Chief Business Officer Mukund Kulashekaran has revealed that the ESOPs he received during his tenure at the food delivery aggregator has appreciated 12-14 times till date. In a conversation with Sandeep Jethwani in the Create Wealth podcast, Kulashekaran said that he continues to hold 70% of his Zomato shares. ESOPs are employee benefit plan under which employees get the company’s stock at a low price.  

"Understanding ESOPs (employee stock option plan) took me some time. Fundamentally, I reaIised just salary is not going to create wealth," Kulashekaran, who is now the Chief Business Officer at Urban Company, said. 

Kulashekaran did not have a strong understanding of ESOPs in the early days at Zomato but he developed the knowledge over the years. 

"I didn't know how ESOPs worked. I didn't know what's vesting, what's holding period, strike price. There's so much nuance to it. I only learned that maybe two-three years in," he said. He mentioned that his pay package was designed to be ESOPs-heavy. 

"I negotiated such that my cash was lower and my equity was higher. I think they were also happy because you can't keep both. I dropped my cash. Not just my bonus, I also removed my bonus out of consulting and I dropped my base pay further. I converted all of that into equity in some form or the other," Kulashekaran said. 

Kulashekaran mentioned that he re-negotiated the ESOPs with Zomato based on his strong performance.   

"I find it very uncomfortable to talk about compensation to be honest. So, it was like this awkward conversation saying should we look at equity again. But as soon as I started the conversation, it moved so fast I realized there was trust on both sides," he added. 

While mentioning the wealth the Zomato ESOPs created, Kulashekaran explained how he roughly calculated the anticipated returns. 

"From the time my ESOP was given to today, we are at 12-14x appreciation. So, you have to believe there will be appreciation," he said.  

"If a company grows at 25% for 10 years it's 10x and if it grows 25% for 15 years, I think it's 30x. That's the number I hold in my head because compounding is difficult to remember."

When he got the ESOPs, Kulashekaran had expected Zomato to do a minimum of 25% CAGR. "I knew I should at least take a 10-year view of this, and I knew I can get maybe a 10x appreciation. Because I could see a CAGR of 25-30% at Zomato, it wasn't going to be slower than that." 

He suggested employees should not look at ESOPs with a three-four year horizon, and hold for longer.

"I still hold 70% of my shares at Zomato. I have not sold and it's been I think more than seven eight years since they were issued and I don't plan to sell them anytime soon," he said.

Beyond Zomato, Kulashekaran also shared his journey with Urban Company.  "I did not worry about my cash when I came to UC. It was a markedly step down from where I was at Zomato on cash. But then I realized - the stage of their company, it'll be too expensive for them. I was cool, because they were so generous on equity," he added.

Zomato had listed in the stock market on 23 July 2021 at 52.63 percent premium to its offer price of Rs 76. The stock is currently (14 February 2024) trading at Rs 153.  

Also Read: Zomato Q3 FY24 results: Blinkit posts second consecutive positive quarter, revenue doubles on-year