From vesting to buybacks: Your ESOP grant letter matters more than your salary offer -- here's why

For many job seekers, salary negotiations dominate offer discussions on the table. But according to Sandeep Jethwani, Co-founder of wealth management platform Dezerv, employees may be overlooking a far more valuable document: their Employee Stock Ownership Plan (ESOP) grant letter.

In a recent post, Jethwani argued that while candidates spend significant time negotiating compensation, very few carefully examine the details of their ESOP policy — a mistake that could potentially cost them lakhs or even crores of rupees over the course of their careers.

"Your ESOP grant letter is more important than your salary offer," Jethwani said, highlighting that the structure and terms of an ESOP can have a major impact on long-term wealth creation.

ESOP policies

A comparison shared by Dezerv shows that employee-friendly ESOP policies differ significantly from restrictive ones across parameters such as vesting schedules, exercise windows, liquidity opportunities and tax support.

According to the framework, outstanding ESOP policies are typically available to all employees, offer larger ESOP pools exceeding 15%, have four-year vesting periods, and provide regular buyback opportunities that allow employees to convert paper wealth into cash.

By contrast, weaker ESOP structures often feature smaller pools, longer vesting periods and limited liquidity options.

Red Flag 1: Vesting beyond four years

One of the first aspects candidates should examine is the vesting period.

Jethwani noted that vesting schedules longer than four years are increasingly viewed as unfavourable. While some startups continue to offer five- or six-year vesting plans, many employee-friendly companies have shifted toward four-year structures.

Longer vesting periods delay wealth creation and require employees to stay with the company significantly longer before fully earning their equity.

Red Flag 2: Back-loaded vesting schedules

The timing of vesting is equally important.

Some companies structure vesting so that employees receive only a small portion of their equity during the initial years. Examples include schedules such as 10%-15%-20%-25%-30% spread over five years.

Under such arrangements, employees accumulate ownership slowly and may need to remain with the company for extended periods before the equity becomes meaningful.

A more balanced structure is a 25%-25%-25%-25% schedule over four years. Employee-friendly companies may also begin vesting from the date of joining rather than from the date the ESOPs are formally allotted.

 

Red Flag 3: Short exercise windows

One of the most overlooked ESOP clauses relates to the exercise period after leaving a company.

Many firms provide employees only 30 to 90 days to exercise vested options after resignation. However, exercising ESOPs can trigger substantial tax liabilities that are often multiple times the exercise cost itself.

If employees are unable to arrange funds within the limited window, they risk losing their vested options altogether.

Red Flag 4: Clawback clauses

Certain companies include clawback provisions requiring employees to surrender previously earned equity if they leave before a specified period. Such clauses can significantly reduce the value of ESOP benefits.

Another important factor is liquidity. ESOPs generate wealth only when employees can sell or monetize them.

"ESOPs without any path to liquidity are just numbers on paper," Jethwani said, advising candidates to ask whether the company has conducted employee buybacks and how frequently they occur.

No understanding of ESOPs

According to research conducted by Dezerv, financial awareness around ESOPs remains surprisingly low.

The firm found that nearly 60% of individuals holding more than ₹1 crore worth of ESOP wealth did not know their strike price, vesting schedule or key grant-letter terms.

For employees evaluating job offers, experts say understanding ESOP mechanics may be just as important as assessing salary, especially in startups and high-growth companies where equity can become a significant driver of long-term wealth creation.