Comment by a13n | Hacker News Reader

Comment by a13n | Hacker News Reader

A fantastic piece and a subject I've spent a lot of time thinking about as an early-stage founder.

There's a ton of criticism in this thread but I think people are missing the point.

1. Why 90 days expiration sucks.

If you're an early employee at, say, Uber... your options have vested but you can't afford to exercise them because you don't have $10m+ in cash. If you leave you lose it all because you can't exercise them. There goes your big payout, you are stuck working at Uber until they IPO (or forfeiting your equity).

2. Why 10 years expiration sucks (on its own, keep reading!).

Consider the case where you have two employees who joined on day 1. Employee A works for 4 years and vests X% in options, leaves. Employee B works for 10 years and vests X% in options.

Obviously you want to retain your most senior employees and turn them into leaders within your company rather than see them leave. Those who stay and help carry out the mission are way more valuable to you than those who leave right when they vest.

If you change nothing except 10 years till option expiration after leaving, employee A and B get compensated the EXACT same thing despite employee B contributing 10 years and employee A contributing 4.

3. Longer vesting + more equity fixes everything

If you dish out more equity over longer periods of time then employee B would rightfully be compensated more than employee A.

I don't understand the negativity in this thread whatsoever. Can someone please level-headedly explain why they disagree rather than just downvoting into oblivion?

I didn't downvote you, but I do disagree with your view.

A straightforward way to keep someone around after their four-year vesting clock expires is to grant them new shares on a new vesting schedule.

Their initial grant was part of compensation that reflected their probable value contribution to the company over the four-year vesting cycle. If the company would accrue additional value by their continuing to work beyond four years, it should compensate them for that additional value with more equity.

And it's not adequate to say their work will increase the value of their already-vested equity. Dilution happens.

Also, it's not true that the two employees receive the same compensation. The one who departs receives six years less (salary, bonus, benefits, etc.) than the one who continues for ten years.

Because the 10-year employee will be granted additional shares after her initial option grant is fully vested. And in a world where both have the option of leaving and preserving their option value, the follow-up grant will likely be larger than it is in the status quo, because the company will have to incent B to give an additional 6 years of her life to the startup.

Sure but if you join on day 1 then the refresher grants could be peanuts compared to your initial offer? Why wait 4 years to find out you won't get any more equity instead of baking it into the original offer with a longer vesting period?

Longer vesting periods + more equity guarantee that employees get more equity. 4 year vesting lets the board decide what happens.

No one is going to 2.5x their 4 year early grant and vest it over 10.

You could do 1.5x over 8. Employee gets more equity in the long run if they stay and still a great payout if they only stay 4 years. It's similar to what I plan to do for my company.

In this scenario you give those employees a new 4 year refresher grant every single year. Not one at hire and one four years later. You pile them on both as a form of performance based compensation and to prevent the exact situation you describe.

In your example the guy who leaves after 4 years of low salary makes a lot less than the guy who gets incremental grants and a growing salary who is a vp at the end making 500k a year.

Seems like your incremental grants would be significantly less than the initial ones joining early on, no? Or is it common that leaders get big refreshers along the way?

I would say I'm pretty unfamiliar with early employee refreshes but from what I've heard refreshers are usually small compared to the initial grant.

Yeah I think if you have somebody who is a classic "first engineering hire" and s/he grows into an engineering leader, each major promotion (to manager, director, vp) brings an opportunity for a rich follow-on, as well as a normal yearly grant. Now if somebody is particularly adept at negotiating and somehow take a full point out in their initial grant, you're probably right that incremental grants won't touch that value. But that is 2-4x what I've internalized as the norm.

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