Equity is offered to Indian engineers far more often than it is understood by them, and the gap does most of the damage. A grant letter with a number of options, a strike price and a vesting schedule means very little to someone who has not been through a liquidity event, and a company that treats the grant as self-explanatory usually finds that it neither retains nor motivates. Explaining the instrument properly is not a legal task, it is a management one.
The mechanics that need explaining are few and specific. What percentage of the company the grant represents at today's share count, not just a number of options. What the strike price means and what has to be true for the options to be worth exercising. When they vest and what happens on the cliff. Most importantly, what happens if the person leaves — the exercise window, and the fact that exercising costs real money at a moment when they may have none. That last point is where most Indian ESOP schemes quietly become worthless to the holder.
Exercise economics deserve honesty because in India they can be brutal. An employee leaving a company typically has a limited window to exercise, must pay the strike price out of pocket, and may incur a tax event at exercise on a paper gain in shares they cannot sell. Someone with a meaningful grant can face a bill running into lakhs for an asset with no market. Companies that extend the exercise window, or that run buyback events, are not being generous — they are making the instrument function as intended.
Buybacks are the thing that converts a scheme from theoretical to real, and the first one changes everything about how the next grant is received. It does not need to be large. A modest, periodic liquidity event where employees can sell a portion tells everyone in the company that the number in their grant letter connects to money. Until that has happened once, expect most of your team to discount the equity to nearly zero when comparing your offer to a competing salary, and they are not being unreasonable to do so.
Keep the pool and the paperwork disciplined from the start. A cap table with informal promises, verbal grants, and options issued without board approval is a problem that surfaces during diligence at the worst possible moment. Grants should be board-approved, documented, tracked in one place, and reconciled against the pool. This is dull administration that costs almost nothing when done continuously and a great deal when reconstructed later.
The test of whether your scheme works is simple and worth applying: pick an engineer at random and ask them to explain what they hold and what it might be worth. If they cannot, the equity is not doing any of the work you are paying for it to do, and the fix is communication rather than a larger grant.
