It's not about what one "deserves", it's about protecting infant startups from high turnover. One year is extremely high, potentially fatal turnover rate for companies with <30 employees.
"It's not about what one "deserves", it's about protecting infant startups from high turnover."
Why should any of us care about that? High turnover is a very good signal that the company is a bad one. If the company dies because of it, it was probably for a good reason.
It is only a good signal currently, because in order to voluntarily leave the employee would have to give up their options. That means they're really unhappy and don't believe in the company.
However if you change it so that early stage employees can take their options with them, then it becomes a question of "do I triple down on this one company or do I spread myself out over three." And most investment advisors will tell you to diversify your portfolio. So there is a real risk that this will lead to high turnover, even among happy employees.
That investment advice is for when you don't have inside information. Presumably for teams of fewer than 30 employees most employees should have a good idea of the financials and a lot of knowledge about company performance.
I don't buy that. Maybe one or two people will, but the vast majority of people won't. If they're happy, they're not going to want to risk that by going to a new company where they might be miserable, unless they're severely underpaid and are getting a huge pay bump.
There is a huge financial incentive in the form of diversification. You'll own stock in 3 potential unicorns instead of 1, tripling your chances of getting rich.
Because it's early stage, even just one year's vesting is enough to get you rich if the company makes it. So do you stay and triple down on one stock or spread it out? Especially when equity is such a large component of your compensation at that stage of company? Investment diversification is a rational economic decision that a lot of smart people will make.
The current system forces teams to stick together until IPO/acquisition, maximizing the chances of the options ever being worth something. It should be made more explicit, but it's not necessarily a bad thing (for employee options holders who want them to be worth something).
There are (few) people who do this today. They find angel-level companies as a contractor, get paid in stock + a little bit of cash upfront and do about 10 companies a year. It's the employee equivalent of angel investing. SV law firms do a form of this too.
I can't do something like that due to immigration, but I envy the flexibility.
No. You are vastly overestimating this "diversification" thing. We're not talking about a portfolio here, we're talking about someone's day job. Most people are not going to want to job hop that often unless they hit upon a string of really crappy companies.
And quite frankly, you're basically saying that the company should not have to compete for employees. Which is such an absolute shit of an opinion that I can't even begin to tell you why.
When 20-50% of your compensation is stock then absolutely diversification becomes a consideration. While you may consider it a "day job" separate from "a portfolio", smarter economic actors may see otherwise.
If you remove all financial incentives to stay after hitting a one year cliff there is a pretty strong force towards diversification that seems like it would lead to higher than desirable turnover. You can't just ignore that incentive.
The financial incentive to stay is continued vesting of presumably more-valuable options, about which you have inside knowledge -- the state of development, the sales pipeline, high performance from founders, a deeper understanding of the industry, etc. It doesn't take much job hunting to realize as an employee you're taking a bigger risk than the company. There's some crazy people out there and some really terrible bosses. The same way it's really difficult to evaluate an employee in an interview it's just as hard to evaluate a working environment, a boss, whether the ceo is a meddler with the attention span of a hummingbird, etc. A sane boss with a solid development process that doesn't encourage late nights or lead to incredibly fragile software and/or heroic, stressful ops efforts is worth a hell of a lot.
You just want to leverage golden handcuffs to retain employees... I think honesty all around is the best method. Unfortunately, that further devalues the (already low imo / in my advice) value of options and suggests people are much better off going to established companies.
If the company is more valuable a year later, with good prospects, then the size of the low price of the original grant (which will now vest monthly via standard terms) provide an incentive for staying. So could an additional performance grant, or salary increase.
I guess people hate this idea. But it'll probably only hurt a few founders, who would have been losers anyway; VCs and employees will ultimately be better off.
TBH, many resumes have people who change companies every year or two. It's pretty rare to find a resume where someone stays at a company for many years unless they have a very good reason to.
Would you feel okay with an employment contract like this: "Your salary is $150k, but if you leave in less than ten years there will be a fee of $50k/yr."
That'll lock them to the company, too, and prevent turnover.
Really? How about early startups protect themselves by treating employees fairly and not trying to lock them in with equity tricks many don’t understand. The fact you suggest this course seems to indicate a certain level of disdain for employees. Try the carrot, not the stick.
Options usually have cliffs in the first year and vest monthly. So no-one would get more than they deserve.