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DoorDash removing 1-year cliff for equity grants

blog.doordash.com

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Re: DoorDash removing 1-year cliff for equity grants

#191

Post by quelltext »

endtime wrote: post #154
MattGaiser wrote: post #151

Earlier quoted context omitted.

I am so fascinated at how my grandfather would spend decades at a company, my Dad would spend a decade, and now people decline jobs over the expectation that they stay 1 year. And I was in my first job 51 weeks. I don't think you are wrong in doing so as the market in tech moves fast while employers move like slugs, it is just such a shift from what I grew up to expect.

The problem isn't necessarily that the employee expects to want to leave in under a year, so much as they don't want the company to have an incentive to let them go in under a year.

Now they'd have an incentive to let them go in under a quarter, by that logic.

Not sure if that's really their concern here. Companies don't just ditch reasonably well performing employees because they want to avoid compensating them. That would already mean that each time RSUs vest the company would have an incentive to fire.

Re: DoorDash removing 1-year cliff for equity grants

#192

Post by joshuamorton »

chris11 wrote: post #184
readams wrote: post #145

Earlier quoted context omitted.

The Google front loading is because you'll get annual refresher grants after the first year (and no "big refresh" after four years), and it makes the total comp more even overall as a result.

I'm not convinced. A salary drop from a cliff isn't great, but cliffs are overall good for employees. A front loaded offer arrives at that even comp by baking future stock growth into the offer. A normal four year equity grant arrives at even comp with no movement on equity. I'd much rather have a normal grant and get a cliff if the company does really well.

I think you're misunderstanding something. The Google offer hasn't changed at all[1], in terms of overall dollars provided. The distribution of the same dollars has changed.

I'll illustrate with a relatively concrete example. A recent graduate joins Google on December 31[1] of this year, and gets a 100K initial grant ('22-'25). They then follow an above-average performance trajectory over the next few years, getting refresh grants of 40K ('23-'26), 60K ('24-'27), 80K ('25-'28) and 100K ('26-39').

So in 2022, they'll vest 25K. In 2023, they'll vest 25+10=35K, in 2024 they'll vest 25 + 10 + 15 = 50K. In 2025 they'll vest 25+10+15+20=70K. In 2026 they'll vest...also 70K. And that's assuming a feasible but above-average performance trajectory[2]. If performance is lower, even modeled stock compensation will actually take a dip in year 5.

If you instead take the same total numbers, but frontload the initial vest, you get something like

33, 43, 47, 57, 70 vs the original 25, 35, 50, 70, 70. Its 250K in stock over 5 years either way, but in the second case you don't ever feel like your compensation has flatlined.

[1]: Ok this isn't precisely true, it's gone down, but it went down a few years ago when Google removed the cliff, not when they changed the vesting schedule. For this example, I'll use the trick of assuming they join in December 31, because this ignores the decrease in comp that came as a result of not getting first-year equity refreshes.

[2]: Also note that take-home pay will be lower in 2026 than in 2025, because the 2025 shares are plurality from 2021's vest, with 4 years of growth, while the 2026 shares are plurality from 2026's vest, so less growth.

Re: DoorDash removing 1-year cliff for equity grants

#193

Post by achow »

endtime wrote: post #154
MattGaiser wrote: post #151

Earlier quoted context omitted.

I am so fascinated at how my grandfather would spend decades at a company, my Dad would spend a decade, and now people decline jobs over the expectation that they stay 1 year. And I was in my first job 51 weeks. I don't think you are wrong in doing so as the market in tech moves fast while employers move like slugs, it is just such a shift from what I grew up to expect.

The problem isn't necessarily that the employee expects to want to leave in under a year, so much as they don't want the company to have an incentive to let them go in under a year.

Hiring is one of the most time sucking activity, and the whole notion of stocks/RSUs is to make people stay.

Re: DoorDash removing 1-year cliff for equity grants

#194

Post by joshuamorton »

echelon wrote: post #32
dabfiend19 wrote: post #14

Earlier quoted context omitted.

I work at a smaller company, and here we convert the $ price to a number of shares by taking the 100 day VWAP of the stock from the date of the board meeting where your grant is approved.

Yes, but then they take that calculation to grant you a set number of shares (ISOs, RSUs, etc.) that doesn't change. The value of your award grows with the growth of the company. ESPP-like programs, on the other hand, are always dollar denominated and exchanged at a set rate at the end of the offering period.

GP is correct in that some companies (Stripe, MS, others) convert the dollars to shares at vest time, while others do so at grant time.

The first way makes employees lose out on an average of 2 years of stock growth.

Re: DoorDash removing 1-year cliff for equity grants

#195

Post by hkarthik »

bentlegen wrote: post #175
djrogers wrote: post #168

Earlier quoted context omitted.

Odd, 21 years of startups here and have only ever seen annual or quarterly vests until my current role (which I just started).

Anecdotally, looks like I've had the outlier experience, I suppose.

I've had both monthly and quarterly vesting at both startups and big companies. No rhyme or reason for why either one since the companies were in different sectors/segments. Probably just an accounting quirk.

Re: DoorDash removing 1-year cliff for equity grants

#196

Post by bogomipz »

MattGaiser wrote: post #151
kerng wrote: post #141

This is good progress. Just two months ago I declined an offer from a known and well funded startup because of a one year cliff on equity. The recruiter didn't seem to be able to discuss this matter and I asked them to make sure to bubble this sort of thing up their food chain. I never heard back afterwards. As an "old timer" in the industry a one year cliff makes absolutely no sense to me. Its like working for credi…

I am so fascinated at how my grandfather would spend decades at a company, my Dad would spend a decade, and now people decline jobs over the expectation that they stay 1 year. And I was in my first job 51 weeks. I don't think you are wrong in doing so as the market in tech moves fast while employers move like slugs, it is just such a shift from what I grew up to expect.

I thought the OP meant that since most of the time startups want you to sell you on taking less in salary in lieu of options it makes sense to start vesting those options immediately. I didn't take it to mean that they didn't intend to stay for at least a year. Looking at it that way I think it does make sense. The lower salary take place immediately.

Re: DoorDash removing 1-year cliff for equity grants

#197

Post by MattGaiser »

achow wrote: post #193
endtime wrote: post #154

Earlier quoted context omitted.

The problem isn't necessarily that the employee expects to want to leave in under a year, so much as they don't want the company to have an incentive to let them go in under a year.

Hiring is one of the most time sucking activity, and the whole notion of stocks/RSUs is to make people stay.

Companies sure don't act that way given that people generally need to leave for a raise.

Re: DoorDash removing 1-year cliff for equity grants

#198

Post by mancerayder »

avalys wrote: post #189
mancerayder wrote: post #178

Earlier quoted context omitted.

Naive question here. Given that there's a long-term cap gains consideration, if the company has a strong likelihood (call it greater than 50% chance) of IPO isn't it better to exercise ASAP so the shares are kept more than 12 months in time for the IPO+lockup event? What's the real advantage of waiting to exercise, to make sure that the stock will be worth something versus wasting your call option costs? How high are…

Let's say you accept a lower salary from a startup, because they offer you 100,000 options with a standard 4-year vest/1-year cliff/90 days to exercise at a strike price (409a valuation) of $1 / share, and claim that an exit at $10 / share looks likely if growth stays on track. You stay for three years. The exit hasn't come yet because the VCs want to see a higher valuation, but the company has grown and the 409(a) v…

Makes sense, and thank you for writing this out! It's useful to think about when someone offers equity instead of a higher salary.

Re: DoorDash removing 1-year cliff for equity grants

#199

Post by bogomipz »

I have a tangential question. What is most people's experience with additional options being awarded to employees beyond the initial grant?

Is there generally also a separate cliff for those additional option grants?

I ask because I interviewed with a startup recently and the recruiter told me that the company had just awarded everyone in the company additional options. I asked them if there was a cliff attached to those but they couldn't answer that.

Re: DoorDash removing 1-year cliff for equity grants

#200

Post by dehrmann »

mancerayder wrote: post #178
adoxyz wrote: post #2

Good, pro-employee move. Next, I'd like to see pre-IPO startups offer longer periods to exercise shares when you leave. 90 days being standard is way too low.

Naive question here. Given that there's a long-term cap gains consideration, if the company has a strong likelihood (call it greater than 50% chance) of IPO isn't it better to exercise ASAP so the shares are kept more than 12 months in time for the IPO+lockup event? What's the real advantage of waiting to exercise, to make sure that the stock will be worth something versus wasting your call option costs? How high are…

If the lockup is 180 days, you can wait for a pretty long time before exercising. It's usually halfway apparent when a startup beings IPO readiness.

What gets you with waiting, if you have ISOs, is how much AMT hits you. If you're at a >50% IPO company, it's somewhat common to exercise as many options as you can before the AMT hits you.

It's also worth remembering that your 50% startup could be Wework. It's worth $9B, but was valued at almost $47B.

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