

A vesting idea - abstractbill
http://abstractnonsense.com/vesting-idea.html

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rewind
Employees want to balance options vs. salary vs. time. They need fixed numbers
to calculate this. With your approach, they get penalized if your company
takes too long to sell/go public. If I have a four year vesting schedule, I
know that if I commit four years to your company, I'll be fully vested. But if
I bust my ass for four years then it takes you another four to have some sort
of liquidity event, your company has actually put less value on my initial
four years (in fact, reduced it by 50%). That won't fly with most people. I
think that's why fixed vesting schedules work best, and issuing new options to
retain employees after they're fully vested makes the most sense.

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abstractbill
_With your approach, they get penalized if your company takes too long to
sell/go public._

Sure, it aligns everyone's incentives with getting the company to an exit (not
necessarily as _quickly_ as possible, but if it's going to take a long time,
everyone should have the incentive to make it a _big_ exit). Is that a bad
thing?

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rewind
Put a value on the options, then ask yourself the same question: I'll give you
$200,000 to work for me for four years. But if we don't go public for eight
years, I'll give you $200,000 to work for me for eight years. Doesn't make
much sense to me.

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maxawaytoolong
If an employee leaves prior to a liquidity event they have to exercise their
vested options, which involves spending their own money. The employee who
stays on does not have to take any such financial risk. I don't know what
problem you are really trying to solve. You mention employee retention at the
end, but the rest of the piece makes it sound like you're really trying to
eliminate some sort of hypothetical sour grapes. I don't think the latter is
really worth solving, and the former has proven to be mostly unsolvable.

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kd5bjo
The biggest problem with this that I can see is logistical. You're trying to
define how many shares of stock an employee earns for a month of work now by
something that may happen in the future.

How many shares of stock do you issue when an employee decides to exercise his
options four years in, and will a court uphold you trying to rescind a third
of his stock when you exit in another two?

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abstractbill
_...will a court uphold you trying to rescind a third of his stock when you
exit in another two?_

That sounds pretty much like reverse-vesting, which is a fairly common
practice (my Justin.TV stock has reverse-vesting). You transfer ownership of
100% _immediately_ , but the company has the right to buy back unvested
options for a very low nominal price.

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jwecker
What's the mechanism that would allow a company to attract highly qualified
late-comers via equity- even in the 23rd hour in order to help make the exit
happen- without upsetting the fairness? (not saying this is a flaw- just would
rather you spell it out since you're a math genius) (seriously, he's a math
genius- I saw his CV).

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abstractbill
Late-comers would, like everyone else who stuck around until the exit, vest
100% on exit (ignoring things like cliffs for now). This might seem a little
unfair given they didn't put in much time, but of course you get to play with
the size of the option grant, and make it big or small depending on how highly
qualified they are and how much they're really adding to the exit.

