Tushit Pandey
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Editor’s Note:- If you’re being offered growth shares, you’re not wrong to ask, “Is this actually valuable or just clever wording?” Growth shares often sound impressive when companies present them. But once the conversation ends, most employees are left wondering whether they’ve actually received something valuable or just a fancy equity term. Too many companies explain equity vaguely, but if you’re going to make career decisions based on compensation, you deserve more clarity than buzzwords. This guide walks through growth shares clearly, with real examples, realistic expectations, what you should think about before relying on them, and numbers that actually help you understand what you’re getting into.
Growth shares are a form of equity that becomes valuable only if the company’s valuation exceeds the pre-defined value. This is because employees benefit only from the additional value created beyond that value.
At their core, growth shares are simply shares that only gain financial value when the company’s valuation rises above a predefined hurdle. That hurdle represents the company’s value at the time the plan was created. Anything below it is effectively ignored. Only the additional value created beyond that point is shared with employees.
Growth shares are a special class of equity that become financially meaningful only after the company crosses a predetermined valuation hurdle.
That hurdle is usually set close to the company’s value on the day the plan is created.
Example:
Growth shares participate only in the ₹500 crore created above the hurdle, not the original value.
If the company exits at ₹380 crore, growth shares may be worth nothing.
This is intentional. The company protects earlier investors while still rewarding the employees helping build the next stage of growth.
There’s logic behind it. Research shows employees in ownership-aligned companies are more engaged and more likely to stay long-term , but alignment only matters when people actually understand how their equity works.
Growth shares became popular because traditional equity and stock options start to lose practicality once a company becomes more valuable. If a late-stage company simply keeps issuing ordinary equity, earlier shareholders suffer heavy dilution. Stock options bring different issues: exercise prices become high, tax rules get complicated, and employees may face risk long before liquidity arrives. Growth shares allow leadership to say,
“Help us create the next phase of value, and we will share it fairly,”
while still protecting historical ownership.
They also encourage thinking in horizons rather than months. Instead of focusing solely on salaries or annual bonuses, employees are now linked to outcomes tied to milestones, strategy execution, and eventual exit events. Academic research on long-term incentives consistently finds stronger alignment between behavior and company performance when rewards extend beyond short-term payouts.
When communicated honestly, growth shares can feel like a genuine partnership rather than a sales pitch. When communicated poorly, they feel like vapor.
Growth shares are almost always tied to vesting schedules, exit conditions, and payout priority rules. Vesting determines when you actually earn the right to your shares, typically over 3-4 years , with a one-year cliff.
Even once vested, value doesn’t automatically appear in your account. Most growth share payouts occur only when the company is acquired, goes public, or runs a structured buyback program. That means value is tied to company milestones, timing, market conditions, and leadership execution.
Major tech exits often take 6-10 years from early stage to liquidity. There is a “waterfall”. Investors usually get paid first, then preferred shareholders, and only then do growth shareholders participate. It isn’t unfair; it reflects who took the risk earliest.
Understanding these moving pieces matters far more than memorizing terminology.
Let’s put numbers on it.
Employee growth pool: 10%
Your allocation: 1% of that pool
Your outcome:
1% × 10% × ₹500 crore = ₹50 lakh (before tax)
That can be meaningful if the company performs.
But if the exit happens at ₹420 crore?
Growth = ₹20 crore
Your payout drops dramatically.
Exit below hurdle?
Value = ₹0
Same role. Same work. Entirely different outcome.
This is why growth shares are upside, not salary replacement.
Growth shares can be powerful when:
Growth shares tend to be most useful in later-stage or mature private companies where significant value already exists and leadership genuinely expects further expansion or exit. They make less sense when hurdles are set unrealistically high, when leadership isn’t transparent, or when the company has no clear liquidity plan. A realistic exit horizon matters. Many private companies take 5-10 years before seeing a major event that unlocks value
If leadership cannot clearly explain how value eventually converts to cash, treat the offer as speculative upside, not compensation replacement. So evaluate growth shares as potential upside, not guaranteed wealth.
And remember, exits are rare. Globally, only a small fraction of private companies ever reach IPO, and many remain private indefinitely.
Stock options let you buy shares later at a fixed price. They can produce huge upside but require cash and sometimes tax exposure.
Growth shares don’t require purchase. Instead, they only gain value above the hurdle. They tend to make more sense when companies are already worth a lot and need fairer alignment.
Neither is automatically better. The right one depends on
Smart employees compare structures, not promises. Neither instrument is universally better. The right choice depends on stage, valuation level, personal risk tolerance, and clarity around exits. Employees make smarter decisions when they understand mechanics rather than chasing promises.
Before accepting growth shares, ask:
Clear answers build trust. Vague answers signal caution. A strong company will walk you through each answer calmly. Evasive responses are usually not a documentation problem; they're a transparency problem.
Growth shares are not magic, and they are not useless. When structured fairly and explained honestly, they give employees a chance to benefit from future growth without distorting existing ownership. When misunderstood, they become empty expectations. Treat them as long-term upside, not guaranteed salary. Learn the hurdle. Understand the exit plan. Know how the waterfall works. And evaluate whether the company truly has the momentum and leadership to cross those milestones.
If all those pieces make sense, growth shares can be one of the most meaningful parts of your compensation, not today, but when growth genuinely happens.
No. They create value only if the company grows beyond the hurdle and experiences a liquidity event such as an acquisition, IPO, or structured buyback.
They are different, not safer. Options require exercise and carry price risk. Growth shares depend on exceeding the hurdle and reaching exit; each has trade-offs.
Usually not. Most plans restrict transfers and require company approval, meaning liquidity typically comes only during official events.
They are designed not to dilute past value. Dilution applies only to growth beyond the hurdle, which is why many founders prefer them.
Tax treatment varies by country and plan structure. Always consult a qualified tax advisor; equity mistakes are expensive to fix later.
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