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Backloaded vesting seems like a terrible idea. It puts the employee in a really vulnerable position. As a company grows, the absolute value that a given person

by diego 11y ago

Backloaded vesting seems like a terrible idea. It puts the employee in a really vulnerable position. As a company grows, the absolute value that a given person generates should decrease relative to everyone else. The function (relative value created this month / stock vested) decreases even more quickly. This may create an incentive to fire (or at least not try to retain) an employee after the first or second years. The founders may not need to increase this person's salary because of the perceived value to come, so this person may end up making less money than later employees. I would not even think of proposing a backloaded vesting schedule to an employee. There's nothing wrong with an even vesting schedule in terms of employee alignment. If you cannot retain an early employee after year 1 or 2 you have other problems.

jkarneges 11y ago
My thinking as well. Heck, early employees are already vulnerable enough with linear vesting. Frontloaded vesting would make the most sense, but that could be tricky to get right.
beninato 11y ago
The reason I brought this up is that there are some founders who believe if you only stick around a year or two, you aren't loyal so you shouldn't get any stock. Some companies have repurchase rights. I was trying to suggest a way for employees who leave after a year or two to keep what they've vested and appease those founders who take a hard line about buy backs. I think this norm will be difficult to change although Sam Altman also discussed it in a post in recent years.
Stasis5001 11y ago
I agree. I came across this once, and ran the following model. Assume you assess the expected value of the equity grant to be, let's say, $100k over 4 years. Then this means your total comp will rise by $10k a year, which probably is comparable to your natural gain in market value. Thus this is equivalent to taking a similar offer except with $40k in equity with linear vesting, and either getting a raise or switching companies to get the $10k/year raise. What this analysis omits is that the expected value calculation ignores the fact that the equity far exceeding the expected value is correlated with a desire to stay at the company, which makes the backloaded vesting irrelevant. If you interpolate a bit to account for that correlation, I personally started concluding the $100k offer became more like $50-60k, which dropped the offer below market rate and I walked.

by diego 11y ago

jkarneges 11y ago

My thinking as well. Heck, early employees are already vulnerable enough with linear vesting. Frontloaded vesting would make the most sense, but that could be tricky to get right.

beninato 11y ago

The reason I brought this up is that there are some founders who believe if you only stick around a year or two, you aren't loyal so you shouldn't get any stock. Some companies have repurchase rights. I was trying to suggest a way for employees who leave after a year or two to keep what they've vested and appease those founders who take a hard line about buy backs. I think this norm will be difficult to change although Sam Altman also discussed it in a post in recent years.

Stasis5001 11y ago

I agree. I came across this once, and ran the following model. Assume you assess the expected value of the equity grant to be, let's say, $100k over 4 years. Then this means your total comp will rise by $10k a year, which probably is comparable to your natural gain in market value. Thus this is equivalent to taking a similar offer except with $40k in equity with linear vesting, and either getting a raise or switching companies to get the $10k/year raise. What this analysis omits is that the expected value calculation ignores the fact that the equity far exceeding the expected value is correlated with a desire to stay at the company, which makes the backloaded vesting irrelevant. If you interpolate a bit to account for that correlation, I personally started concluding the $100k offer became more like $50-60k, which dropped the offer below market rate and I walked.