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Introducing Progressive Equity – Increase employee ownership as company grows

blog.detour.com

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Re: Introducing Progressive Equity – Increase employee ownership as company grows

#31

Post by tropchan »

This is very cool. One thing I've also wondered about is letting talent adjust compensation on floating scale between $$$ and equity... also, as in "earn-in"! I thought this could be an great way to attract high-impact team members.

It's tough sell to leave a high-paying stable job for a risky lower paying job... but what if you could adjust your salary and "earn-in" more equity... It could lower the burn and align interests better. Thoughts?

Also, can I get paid in Megadonks ?

Re: Introducing Progressive Equity – Increase employee ownership as company grows

#33

Post by Saturnaut »

I worked for a company a few years back that followed a similar idea. We had a bottom line for operating costs (salary, benefits, rent, utilities, other general expenses) plus a flat 25% being invested back into the company. Everything else left over at the end of the month was distributed to the employees based on their roles. It took a while to iron out. At first we had issues as the money was rolled out as a quarterly bonus, which caused a lot of tax to be taken off the top. It changed a lot over the first year, and ended up being abandoned in favor of giving consistent raises.

Re: Introducing Progressive Equity – Increase employee ownership as company grows

#35

Post by pcl »

kzhahou wrote: post #24

Wonderful to see this new idea. But Andrew: instead of inventing this new model, why not achieve the redistribution by changing the percentages of the well-understood system. So instead of, say: 50% founder, 35% investors, 15% option pool (i.e., all employees combined) Something like: 20% founder, 35% investors, 45% option pool

If you made that change only, you'd presumably still end up allocating the remaining 45% in a way that skewed heavily towards early hires. On the other hand, this system allocates the unicorn value to much later hires as well.

Re: Introducing Progressive Equity – Increase employee ownership as company grows

#36

Post by andrew »

kak9 wrote: post #4

This is really interesting, and I always like rethinking of equity distribution--since it's so lopsided currently. Some questions off the top of my head - Since employees leaving don't receive from the kicker pool. Doesn't this incentivize people who are unhappy and want to leave to stay? There are some benefits to this, but seem like a ton of costs too (and part of what Pinterest's change was addressing) - How is th…

> - How is the kicker pool redistributed? Equally or along the lines of people's current distributions of equity?

Along the lines of current (fully vested) distribution. So if there are three employees - Lisa, Erin, and Aaron, and Lisa has 5%, Erin has 2% and Aaron has 3%, then Lisa would get 50% of the kicker pool.

> Curious if you have opinion on where the threshold should be set?

I do have an opinion, if the 18 year old version of myself heard it, he'd want to punch the 34 year old version of me in the face, so I'm going to let you guys figure out your own number and not put myself in a position of defending a position that I'm semi ashamed of anyway.

> And if it eventually makes sense to do tiers of thresholds? Or if you think the simplicity makes it make sense not to.

We decided to keep things simple treat financial independence as a binary state, but you could definitely do tiers if you wanted to.

Re: Introducing Progressive Equity – Increase employee ownership as company grows

#37

Post by sadface »

kzhahou wrote: post #24

Wonderful to see this new idea. But Andrew: instead of inventing this new model, why not achieve the redistribution by changing the percentages of the well-understood system. So instead of, say: 50% founder, 35% investors, 15% option pool (i.e., all employees combined) Something like: 20% founder, 35% investors, 45% option pool

If the founders goals are to achieve a satisfying outcome ("financial security"), they would have to achieve a 2.5x bigger exit under scenario 2 than scenario 1. Andrew's new system retains scenario 1's "ease" of achieving a satisfying outcome for the founders while allowing the other employees to reap more of the benefits if the company grows further.

It's a structure supporting the idea that the first $X million are pretty important for the founders (or anyone, really) but the next $XXXm aren't as big of a deal and can be spread around somewhat, hopefully increasing the total number of people who hit $Xm within the company if it becomes huge.

I like the idea.

Re: Introducing Progressive Equity – Increase employee ownership as company grows

#38

Post by andrew »

ucaetano wrote: post #17

Wouldn't this have the effect of changing the risk/return balance? For those joining your company early on, the risk would remain the same, but the return would fall sharply (by ~50%), while for those joining late in the game, the risk would remain the same, but the returns would increase a lot. If everything else remains the same, people would be less willing to take risks and join early stage companies, instead try…

I recommend setting the financial independence threshold high enough that normal people will feel like anything beyond it is useless anyway. So there's no real downside unless you have your heart set on spawning a couple of Foxcatchers. And there's tons of upside.

Re: Introducing Progressive Equity – Increase employee ownership as company grows

#39

Post by andrew »

coffeemug wrote: post #16

I don't know if the mechanics work out (designing legal structures like this is super-tricky), but the idea is wonderful. Do you think it's possible to implement this in an existing (post-series A but pre-unicorn) company, or does it have to happen before the company takes on significant funding?

That's a great question. I'll ask my lawyer and report back.

Re: Introducing Progressive Equity – Increase employee ownership as company grows

#40

Post by andrew »

kzhahou wrote: post #24

Wonderful to see this new idea. But Andrew: instead of inventing this new model, why not achieve the redistribution by changing the percentages of the well-understood system. So instead of, say: 50% founder, 35% investors, 15% option pool (i.e., all employees combined) Something like: 20% founder, 35% investors, 45% option pool

The benefit to founders of progressive equity is that at a smaller exit they still get a big return. It's only when the numbers get huge, as they often seem to be doing these days, that progressive equity kick in. Like a progressive tax system.
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