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Agree with you on this. We do that at my company Divvy. Each prospective hire is given 3 different options (varying levels of cash / equity). The "implied" valu

Agree with you on this. We do that at my company Divvy. Each prospective hire is given 3 different options (varying levels of cash / equity). The "implied" value of all three at the current valuation is the same, but as you mention some people prefer more equity upside and some prefer more cash in hand.

SkyPuncher 6y ago
Wow. That's an absolutely fantastic way to do this.
boulos 6y ago
Awesome! Any lessons learned? (The main one I’ve seen and worried about is sophistication of employees with their equity. Options are confusing! But that’s true whether it’s a single offer or multiple perspectives).
- nbclark 6y ago
  In general, it seems to be appreciated. We initially set it up this way to help take some of the stress out of negotiation (as that favors certain people over others). A few learnings off the top of my mind: 1. Regardless of the structure, the offer needs to be competitive. This wouldn't really help with lowballing offers. 2. Across the ~30 offers I've given out, I don't think that either of the 3 variants is more common. I suppose that indicates that different candidates are indeed optimizing for different situations. 3. Our hiring has intentionally skewed more senior and I think the variants of offers has helped create more family friendly offers. Regarding options, I tend to make sure to offer to spend a good bit of time laying out the details of how they work (strike price, preferred value, vesting, cliffs, early exercise, etc.). They are indeed confusing and I find that people typically either overvalue the value of the options today, or undervalue the potential upside.
  - boulos 6y ago
    How much do you space out the three variants? Have you gone beyond the endpoints? (But followed the same curve)
    - nbclark 6y ago
      Depends on the role/level, but ~10-15k annually between each tier. I have gone beyond the endpoints (within reason) by just linearly extrapolating, though that tends to be pretty uncommon.
tmp538394722 6y ago
Interesting. I wonder how this plays out in practice - what choices people tend to make. I wonder if there are politics for people who take more cash and less stock - does mgmt assume it implies less good will, since the employee is literally “less invested” in the outcome?
- nbclark 6y ago
  Can only speak to my experience, but I am completely indifferent to their choice. Either of the 3 tend to be relatively substantial in equity, so everyone is invested in some regard. I also believe that in the long run, unvested options aren't the best retention strategy and that a challenging and rewarding work environment coupled with competitive compensation is the way to build an invested team.
RhysU 6y ago
But why not give everyone cash consistently and then allow them to buy equity as they desire, when they desire, by reinvesting in the business at the current prevailing rate? As even Homer Simpson figured out "Money can be exchanged for goods and services."
- lostinquebec 6y ago
  Isn't there a tax implication? Tax is one reason part why people choose non-monetary remuneration. I'm not American, but my guess is in all jurisdictions that tax would vary based on the type of non-monetary remuneration.
  - nbclark 6y ago
    I guess it would depend how you structure the purchases. If you allow for the purchasing of a common share at the 409 valuation, you wouldn't have a tax hit until you sell it. You would be taxed on the salary used to purchase the share, however.
  - lotsofpulp 6y ago
    I'm not aware of any tax advantages of equity compensation in the US versus cash compensation. If anything, it could be a liability in the case that it's not actively traded, or if you trigger AMT and aren't able to sell the stock to pay the taxes. The type of compensation that comes with tax benefits is things such as subsidized health insurance, 401k retirement savings, commuter benefits, dependent care expenses, tuition, etc. That type of stuff is basically non taxed income.
    - closeparen 6y ago
      If you get lucky and your options both appreciate and become liquid, this windfall is taxed at long term capital gains rates.
      - sokoloff 6y ago
        That depends on the facts and circumstances. If they become liquid and valuable before you exercise them, you’re taxed as wages or short-term capital gains rates on those gains.
mattpratt 6y ago
This 3-tier presentation is used at a couple places and would caution it as a way to anchor you on salary and equity. A lot of hires will negotiate the “salary high” and “equity high” option, saying they want no sacrifices, get both and join thinking they got a great deal.

SkyPuncher 6y ago

Wow. That's an absolutely fantastic way to do this.

boulos 6y ago

Awesome! Any lessons learned? (The main one I’ve seen and worried about is sophistication of employees with their equity. Options are confusing! But that’s true whether it’s a single offer or multiple perspectives).

nbclark 6y ago
In general, it seems to be appreciated. We initially set it up this way to help take some of the stress out of negotiation (as that favors certain people over others). A few learnings off the top of my mind: 1. Regardless of the structure, the offer needs to be competitive. This wouldn't really help with lowballing offers. 2. Across the ~30 offers I've given out, I don't think that either of the 3 variants is more common. I suppose that indicates that different candidates are indeed optimizing for different situations. 3. Our hiring has intentionally skewed more senior and I think the variants of offers has helped create more family friendly offers. Regarding options, I tend to make sure to offer to spend a good bit of time laying out the details of how they work (strike price, preferred value, vesting, cliffs, early exercise, etc.). They are indeed confusing and I find that people typically either overvalue the value of the options today, or undervalue the potential upside.
- boulos 6y ago
  How much do you space out the three variants? Have you gone beyond the endpoints? (But followed the same curve)
  - nbclark 6y ago
    Depends on the role/level, but ~10-15k annually between each tier. I have gone beyond the endpoints (within reason) by just linearly extrapolating, though that tends to be pretty uncommon.

tmp538394722 6y ago

Interesting. I wonder how this plays out in practice - what choices people tend to make. I wonder if there are politics for people who take more cash and less stock - does mgmt assume it implies less good will, since the employee is literally “less invested” in the outcome?

nbclark 6y ago
Can only speak to my experience, but I am completely indifferent to their choice. Either of the 3 tend to be relatively substantial in equity, so everyone is invested in some regard. I also believe that in the long run, unvested options aren't the best retention strategy and that a challenging and rewarding work environment coupled with competitive compensation is the way to build an invested team.

RhysU 6y ago

But why not give everyone cash consistently and then allow them to buy equity as they desire, when they desire, by reinvesting in the business at the current prevailing rate? As even Homer Simpson figured out "Money can be exchanged for goods and services."

lostinquebec 6y ago
Isn't there a tax implication? Tax is one reason part why people choose non-monetary remuneration. I'm not American, but my guess is in all jurisdictions that tax would vary based on the type of non-monetary remuneration.
- nbclark 6y ago
  I guess it would depend how you structure the purchases. If you allow for the purchasing of a common share at the 409 valuation, you wouldn't have a tax hit until you sell it. You would be taxed on the salary used to purchase the share, however.
- lotsofpulp 6y ago
  I'm not aware of any tax advantages of equity compensation in the US versus cash compensation. If anything, it could be a liability in the case that it's not actively traded, or if you trigger AMT and aren't able to sell the stock to pay the taxes. The type of compensation that comes with tax benefits is things such as subsidized health insurance, 401k retirement savings, commuter benefits, dependent care expenses, tuition, etc. That type of stuff is basically non taxed income.
  - closeparen 6y ago
    If you get lucky and your options both appreciate and become liquid, this windfall is taxed at long term capital gains rates.
    - sokoloff 6y ago
      That depends on the facts and circumstances. If they become liquid and valuable before you exercise them, you’re taxed as wages or short-term capital gains rates on those gains.

mattpratt 6y ago

This 3-tier presentation is used at a couple places and would caution it as a way to anchor you on salary and equity. A lot of hires will negotiate the “salary high” and “equity high” option, saying they want no sacrifices, get both and join thinking they got a great deal.