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Stock options are a poor proxy for company value. Instead, a company should allocate an interest in any in-the-money exit towards a pool that is distributed to
by rexreed 6y ago
Stock options are a poor proxy for company value. Instead, a company should allocate an interest in any in-the-money exit towards a pool that is distributed to employees on a rata share depending on duration of employment and period of employment. I've been working on an interesting formula for this that even rewards those who have left the company.
Most employees don't need or want a share of the company. They want a share of the profits or proceeds from an exit.
For example, a company can allocate 20% of all in-the-money proceeds from an exit to the Employee Exit Share pool. An employee's share of that Exit pool will be based on their employee-months worked divided by the total employee-months worked in the company, with every one year of employee months worked counting an additional time for the purposes of calculation. This thus rewards early employees and those who have worked for longer durations with a larger share.
- adrr 6y agoOwnership comes with legal protections from being screwed over during a liquidity event. End of the day, I want to be holding the same type of shares of the founders because I know that our interest are aligned.
- rexreed 6y agoAnd what specific legal protections would you be caring out most that would not be addressable with a shared exit pool? Common stock options are highly limited in their legal recourse and common share owners are often (legally) shafted through dilution, restrictions on share sales, and inability to access direct control. Anything that is worth caring about from a legal perspective can be addressed through means of a guaranteed profit and exit share versus the less tangible and more easily screwed around with common shares, in which employee and founder interests are in many ways not aligned.