A vesting idea
My friend Emmett and I were talking about vesting schedules and how they can be unfair or lead to the wrong kinds of incentives sometimes (he just saw The Social Network, which sparked this conversation).
I had an idea for fixing this, which he thought was a good one, so I thought I would write it up to see what other people would think.
Normal vesting schedules are fixed - most often three or four years. If you stay at a startup for the whole of your vesting schedule, you get all of your options no matter how much longer it takes for the company to have an exit. But if you leave, say after four years, and I stick it out for another couple of years (having been hired on the same date), and then the company gets acquired it would suck if I don't get a better deal than you. This can be fixed by hacks like giving out more options periodically, but that seems like an ugly kludge (and definitely isn't guaranteed to happen).
So why don't startups set things up so that if an exit happens, the length of each person's vesting schedule is retroactively defined as the difference between the exit date, and that person's start date?
That way in the above scenario, I stuck it out for six years whereas you left after four. Both of our vesting schedules are six years long based on our start dates, so I get all of my options but you wind up only being 2/3 vested because you left two years before the exit.
The idea seems compatible with things like cliffs - you could still have the provision that anyone leaving before one year gets nothing.
This strikes me as more fair, and gives everyone the incentive to stick around and keep working until the company has an exit.
Is there a downside I'm not seeing? Tell me on this Hacker News thread.
Bill Moorier (@billmoorier)