Download - Wealthfront Equity Plan
How do you attract andretain the best employees?
CHALLENGINGWORK
ENVIRONMENT
ENGAGINGCULTURE
COMPELLINGEQUITY
INCENTIVES
1
2 3
ATTRACT
RETAIN
Equity incentives must both
ATTRACT NEW
EMPLOYEES
RETAIN OUTSTANDIN
GEMPLOYEES
AND
Plan approach must beRATIONAL & EQUITABLE
Over the past 25 years…
6
Our founder Andy Rachleff designed a plan that accomplishes both goals at a level of dilution that is quite tolerable
That plan has become known as the Wealthfront Equity Plan
What follows is a detailed recipe for how to implement this plan
Company– Consumer Internet– 50 employees– San Francisco Bay Area
Staffing Goal– Grow employee base to
100 by end of next year
Let’s Start With An Example Company
7
2X
A compelling equity compensation plan has four types of grants:
PROMOTIONS
PERFORMANCE EVERGREEN
NEW HIRES
Let’s first focus on new hires:
PROMOTIONS
PERFORMANCE EVERGREEN
NEW HIRES
List all functions and expected number of people to be hired
Next, determine the market rates to hire these individuals– Consult the Wealthfront
Startup Compensation Tool
– Let’s look at some examples
New Hires
10
Function Hires
Software Engineer – Level 3 10
Software Engineering Manager 1
Product Management - Level 3 2
Design – Level 3 4
Technical Support – Level 1 10
Technical Support Manager 1
Marketing – Level 3 5
Marketing Manager 1
Admin – Level 1 6
Sales – Rep 3 4
Finance – Level 2 4
Business Development – Level 3 2
Total 50
11
CASH $ in Thousands
SF Bay Area
Percentile
Salary
Equity
75th
$130k
0.105%
25th
$114k
0.036%
Startup Compensation Tool: Example 1Software Engineer Level 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
This Tool is intended to be used as a guide and not as a predictor or guarantor of future job market conditions or salaries. Results should be used as one source of information among others and not as the final word in compensation negotiations or decision-making. Source: 2013 data for 14,720 non-executives in 235 privately held technology companies. Updated: September 4th, 2013
Average 0.07%
EQUITY % of Company
12
CASH $ in Thousands
SF Bay Area
Percentile
Salary
Equity
75th
$128k
0.105%
25th
$103k
0.012%
Startup Compensation Tool: Example 2Product Management Level 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
This Tool is intended to be used as a guide and not as a predictor or guarantor of future job market conditions or salaries. Results should be used as one source of information among others and not as the final word in compensation negotiations or decision-making. Source: 2013 data for 14,720 non-executives in 235 privately held technology companies. Updated: September 4th, 2013
Average 0.08%
EQUITY % of Company
13
CASH $ in Thousands
SF Bay AreaPer
centileSal
aryEqu
ity
75th
$233k
0.086%
25th
$105k
0.004%
Startup Compensation Tool: Example 3Sales Rep 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
This Tool is intended to be used as a guide and not as a predictor or guarantor of future job market conditions or salaries. Results should be used as one source of information among others and not as the final word in compensation negotiations or decision-making. Source: 2013 data for 14,720 non-executives in 235 privately held technology companies. Updated: September 4th, 2013
Average 0.04%
EQUITY % of Company
Repeat This Process for All Hires ListedCreate an “Equity Budget” to Calculate Total Dilution for New Hires
14
Function Hires % Per Employee Dilution
Software Engineer – Level 3 10 0.07 0.70
Software Engineering Manager 1 0.10 0.10Product Management - Level 3 2 0.08 0.16
Design – Level 3 4 0.04 0.16
Technical Support – Level 1 10 0.01 0.10
Technical Support Manager 1 0.06 0.06
Marketing – Level 3 5 0.04 0.20
Marketing Manager 1 0.06 0.06
Admin – Level 1 6 0.02 0.12
Sales – Rep 3 4 0.04 0.16
Finance – Level 2 4 0.01 0.04Business Development – Level 3 2 0.06 0.06
Total 50 1.92%
x =
Next, let’s focus on promotions:
PROMOTIONS
PERFORMANCE EVERGREEN
NEW HIRES
1.92%
Need to give employees who have been promoted the amount of stock necessary to get them to the market rate for their new position.
If the person being promoted is already over the market rate, then grant an amount equal to the difference between the market rate of new position and the old position.
Promotions
17
CASH $ in Thousands
Promotion Scenario 1: Below MarketSoftware Engineer Manager 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
This Tool is intended to be used as a guide and not as a predictor or guarantor of future job market conditions or salaries. Results should be used as one source of information among others and not as the final word in compensation negotiations or decision-making. Source: 2013 data for 14,720 non-executives in 235 privately held technology companies. Updated: September 4th, 2013
EQUITY % of Company
Originally hired at 0.06% equity
Percentile
Salary
Equity
75th
$154k
0.134%
25th
$134k
0.066%Average 0.105%
Promoted Position Rate
Grant the difference between promoted rate and original grant: 0.045%
18
CASH $ in Thousands
Percentile
Salary
Equity
75th
$130k
0.105%
25th
$114k
0.036%
Promotion Scenario 2: Above MarketSoftware Engineer Manager 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
This Tool is intended to be used as a guide and not as a predictor or guarantor of future job market conditions or salaries. Results should be used as one source of information among others and not as the final word in compensation negotiations or decision-making. Source: 2013 data for 14,720 non-executives in 235 privately held technology companies. Updated: September 4th, 2013
Average 0.07%
EQUITY % of Company
Early employee,hired at 0.15% equity
Current Position Rate
Percentile
Salary
Equity
75th
$154k
0.105%
25th
$134k
0.036%Average 0.10%
Promoted Position Rate
Grant the difference between promoted position and current position rate: 0.03%
Example Promotion Increase
19
To Be Promoted Starting EquityMarket Rate for Promoted Position
Additional Grant
Engineering Manager 0.06% 0.105% 0.045%
Scenario 1: Current Equity is Below the Promoted Position Equity
To Be Promoted Current Equity
Market Rate for Current Position
Market Rate for Promoted Position
Additional Grant
Engineering Manager 0.15% 0.07% 0.10% 0.03%
Scenario 2: Current Equity is Above the Promoted Position Equity
# of Promotions Average Incremental Grant / Promotion Total Dilution
5 0.1% 0.5%
Total Equity Dilution for All Promotions
x =
Now let’s focus on performance:
PROMOTIONS
PERFORMANCE EVERGREEN
NEW HIRES
1.92%
0.5%
Give equity bumps to a limited number of people to make it seem special – Only the top 10-20% employees
Need to give a bump that feels large but maintains equitable nature of the whole plan
We propose an amount equal to 50% of what they would get hired at today
Performance
22
CASH $ in Thousands
SF Bay Area
Percentile
Salary
Equity
75th
$175k
0.176%
25th
$118k
0.045%
Performance ScenarioProduct Management Manager 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
This Tool is intended to be used as a guide and not as a predictor or guarantor of future job market conditions or salaries. Results should be used as one source of information among others and not as the final word in compensation negotiations or decision-making. Source: 2013 data for 14,720 non-executives in 235 privately held technology companies. Updated: September 4th, 2013
Average 0.11%
EQUITY % of Company
Grant 50% of the average: 0.055%
Example Performance Increase
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High Performer Today’s Market Rate Additional Grant (50%)
Software Engineer 0.11 0.055
# of Top Performers Average Incremental Grant / Performer Total Dilution
5 0.05 0.125%
Total Equity Dilution for Performance
Equity Dilution for Our Example
x =
Finally, let’s focus on evergreen:
PROMOTIONS
PERFORMANCE EVERGREEN
NEW HIRES
1.92%
0.5%
0.125%
Goal: retain employees for the long term
Avoid vesting cliffs so they don't look around for new opportunities
Evergreen
26
CASH $ in Thousands
SF Bay Area
Percentile
Salary
Equity
75th
$130k
0.105%
25th
$114k
0.036%
Evergreen ScenarioSoftware Engineer Level 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
This Tool is intended to be used as a guide and not as a predictor or guarantor of future job market conditions or salaries. Results should be used as one source of information among others and not as the final word in compensation negotiations or decision-making. Source: 2013 data for 14,720 non-executives in 235 privately held technology companies. Updated: September 4th, 2013
Average 0.07%
EQUITY % of Company
Grant 25% of the average each yearstarting at 2.5 years: 0.018%
Start offering additional stockat 2.5 years
Give 1/4 of current market offer for their current job each year on anniversary of first evergreen grant
Evergreen: Smooth Out Grants & Avoid Cliffs
In this case, we grant 0.018% per year (0.07% ÷ 4)
Each grant vests over 4 yearsGranting small amounts every
year avoids cliffs
Initial Grant
EQUITY
TENUREyears
Example Evergreen Increase
28
Level EvergreenGrants
Average Incremental Grant / Level
% GrantedPer Year
AdditionalGrant
Executives 4 1.0 0.25 1.0
Non Execs 16 0.1 0.25 0.4
Total 20 1.4%
Evergreen Role Market Rate for Current Position
% Granted Per Year
Additional Grant
Software Engineer 0.07 0.25 0.0175
Total Equity Dilution for Evergreen Employees
Equity Dilution for Our Example
x =x
Add up all grant dilution
PROMOTIONS
PERFORMANCE EVERGREEN
NEW HIRES
1.92%
0.5%
0.125%
1.4%
+ + +
(well within acceptable range of 3–5%)
Total Dilution:3.945%
Wealthfront.com
