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Comment by abalone | Hacker News Reader

I agree with this, but what do you guys think about minimum service periods? Like requiring 2 or 3 years? Companies like Pinterest and Coinbase have added that condition.[1]

Greater portability could in theory lead to higher turnover even among happy employees. They might go on to found their own company sooner. They might see good financial sense in diversifying their options portfolio. Yet young companies need the team to stick together for a certain time. Especially very small startups at the YC stage -- turnover is very harmful.

Note: In Adam's example, nobody leaves the pre-IPO company in under 4 years of service.[2]

[1] https://github.com/holman/extended-exercise-windows

[2] "imagine a company takes 10 years to IPO. Employee A works at the company from years 0 to 4. Employee B works there from years 4 to 8. Employee C works there from years 8 to 10."

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At Quora we decided not to have a higher "minimum service period" aside from the standard 1 year cliff. The rationale is that the vesting cliff is what everyone is expecting as the minimum. If a company wants to have a higher period before someone can leave and retain their stock, they should just increase the cliff to that length of time to make it fully transparent.

That's a fair point, but cliffs are more severe than exercise windows. Many employees still get to keep some of their equity in a 90 day exit window scenario. I think Kupor modeled it at about a third of vested shares on average.[1]

More mature startups may be able to simply abolish the long-term incentive that the 90 day window provides, but I suspect younger (<30 employee) startups need added turnover protection. Perhaps backloaded vesting would be a more comparable replacement? Transparent, predictable, fair, and not as harsh as cliffs. You keep what you vest, but 70% of it vests in years 3-4.

[1] (Although there's certainly unfair variability based on personal financial circumstances in that average.)

Minimum service periods already basically exist, in the form of a vesting “cliff”. A typical vesting schedule has a 1-year cliff, meaning you don't really get any of your equity unless you work at the company for at least a year.

However, 2- or 3-year cliffs could make sense as an alternate way of promoting a long-term mentality.

I don't like the idea of minimum service periods.

If you want to require a minimum commitment from employees, just increase the cliff. For one thing, cliffs are well-understood.

My chief objection to minimum service periods (whereby you only have 90 days to exercise if you leave "early") is that they actively hurt disadvantaged groups. An upper middle class engineer often has resources or access to resources which will let them exercise options early. In contrast, a disadvantaged employee is unlikely to be able to come up with those funds—which is particularly problematic because they often are leaving to escape a hostile work environment.

At least cliffs apply equally to everyone, regardless of their resources.

> "minimum service periods"

Is this different from a cliff?

Yes; your shares vest earlier (starting at your cliff), but if you leave before your minimum service period, you don't get the benefit of the 3-10 year exercise period. You're subject to the 'regular' exercise period, typically 30 to 90 days after termination.

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