We need to rethink employee compensation

Is it "We should pay people more?"

But isn't that really a question of whether or not you can find people who will work for the salary your offering? If you can't you raise what your willing to pay until you find someone who will right?

Or is it "We should make options always remunerative?"

In which case they aren't really options are they? They are just salary so why not just switch to a fixed + variable salary system like so many folks do. Heck you could even go all pay to perform like sales folks have been paid for ages, "Get this code done, you get paid, don't you don't." I personally don't think that incents the best choices but it can motivate.

If you want to write into your corporate by laws that every round of funding includes a 10% of the shares in the funding must come from employees common stock, and you always divide by 'n' (the number of employees that want to participate) the amount of stock they can contribute, well that is ok, except your converting common to preferred in that case and the SEC is going to ask a lot of questions about that.

There is the perception that founders of unicorns are rich, but trust me, they aren't, what they are is "rich on paper" and when they can't raise any more money and they are running out of cash on hand, the founders stock is going to be worth just as much as the employee's stock, which is near 0. So it will all even out. There are a lot of people who were working in the Bay Area during the 90s (and I'm one of them) that were multi-millionaires on paper at some point, and that same paper because worthless sometime later before it could be converted into cash. Did I "lose" 12 million dollars? No, of course not. I never had 12 million dollars, what I had was a concatenation of increasingly improbable if statements which if the 'true' path was followed to the end, could be converted into $12M. Since not all of those if statements resolved true, the actual result was about $83,000. Lots and lots of people had the same sort of experience.

Aaron, if you're reading, what problem are you trying to solve?

Not sure that this is the best opening argument here. With things like the JOBS Act passing, Reg A+ and such getting off the ground, my hypothesis is that we'll see an acceleration in the rate at which companies are able to get to the IPO stage. If anything, in the short / near-term future, we'll see an increase in value of paper. The whole point of offering equity to shareholders and stakeholders is to have people (ownership theory) who are rooting for and/or willing to work toward group success.

The problem, of course, is that executives at far too many companies use equity like a dangling carrot... demanding more than reasonable time for even a basic ROI for the people whose risks are the riskiest (early employees).

How many VC backed startups get to that sort of valuation without going public? At the $1bn mark, globally, there are 98[1]. I imagine it's possible there are 50 times that number at $0.5bn, but that's still a pretty small number out of all the startups there are. To fix compensation we need things that are going to move the needle even for relatively small companies.

[1] http://graphics.wsj.com/billion-dollar-club/

I realize this is somewhat trolling, but like Benedict Evans joked in the recent a16z podcast on this topic traditionally that's a process called... IPOing.

http://a16z.com/2015/06/17/a16z-podcast-the-rise-of-the-quas...