Compounding Our Pay Problems

untitled 2The pay ratios between CEOs and average employees are once again in the news. This is partly because proxy season always raises this issue and partly because there is a move in some circles to do away with the new pay ratio disclose rule that is part of Dodd-Frank. This year’s ratios will likely be bigger than last. The same will likely be true for most years in the foreseeable future. Here’s why.

The average annual increase for the average employee has been between 2.6% and 3.2% for several years. The use of equity compensation and other long-term compensation tools went down over at least the past decade. At the same time, executive base pay has increased between 5% and 8% most years over most of the past decade. During this period, the use of Continue reading

Startup Equity: Staying Private in a Public World (Part 11 in an n part series)

Stickman Startup Private CoIt is readily accepted that an IPO is Nirvana to a startup. Of course, a fantabulous acquisition will also work in a pinch. Most startups design their equity plans around one or both of these possibilities. The events increasingly trigger vesting events, earn-out periods, house purchases and early retirements. But, what if you want to build something far longer-term? What if you only want to grow, make money and accomplish some important goal? Do equity plans even work for these companies?

The short answer is, they Continue reading

Startup Equity: What About Performance? (Part 10 of an n part series)

Stickman Startup Performance Dashboard“But, how do I make sure that the person is a great performer before I am forced to give them equity?”

This question gets asked by nearly every Founder, Investor or Compensation Committee Member very early in the development of an equity compensation plan. Sometimes it is expressed more genuinely as, “I don’t want to give away part of my company to someone who hasn’t carried their fair share.” Either way, the concern is valid. Sometimes the answer is very simple, and sometimes it is not.

Your equity compensation plan should be aligned with Continue reading

Startup Equity: Three Crucial Variables (Part 9 of an n part series)

stickman startup three crucial thingsStartup equity has approximately a gazillion moving parts. But three of these variables are far more important than all of the others. These three components are what make your plan uniquely yours. They are the things that require real thought. They are also the elements that are most commonly viewed as “plug-and-play” in the world of startups.

  1. Vesting Schedule

Stock options are grants with four-year vesting schedules. Everyone knows this. RSUs have a three-year schedule. Everyone knows this as well. However, while these are the most common vesting schedules, they are not as “standard” or as scientific as you may think.

The truth about vesting is a bit more complex. Vesting should align with Continue reading

Startup Equity: No. They Don’t Get It. (Part 8 of an n part series)

stickman they dont get itDuring a recent presentation I did for industry professionals, an attendee claimed that his employees didn’t need additional education on their equity compensation because they worked in tech and “already understood” these plans. I pointed out that he was mistaken. I stated that most, and perhaps nearly all, employees misunderstand, or do not even try and understand, their stock-based compensation. This is especially true for startups.

Check out a site like Quora, or attend a Technology or Human Resources conference. The questions about stock options, restricted stock units, dilution, values, taxation and more are wide-ranging and numerous. For almost 30 years, equity compensation and startups have been a ubiquitous combination. This long-term relationship has lead us to believe that Continue reading

Startup Equity: The Most Common Mistake (Part 7 of an n part series)

untitledHere is my 2017 gift to you. I truly believe that equity compensation helped build the technology industry, and therefore the world as we know it. But, an unfortunate number of startups make the same error when using this complex and powerful tool that drive corporate success.

If you browse the internet, ask entrepreneurs or receive guidance from someone at a VC firm, you will get similar answers when asking about equity awards for the first twenty, or so, employees. This information, while accurate at a generic level, is likely to be incorrect for your specific circumstances.

The answer looks a bit like this. Outside of the founders, the C-level hires should each get Continue reading

Startup Equity: Synthetic Equity or Sharing Without Sharing (Part 5 of an n part series)

untitled4When you hear “equity compensation” and startups, you immediately think of stock options. More recently RSUs (restricted stock units that settle in company stock) have also been popular. But, what if you aren’t the “sharing” type? Or what if your company doesn’t have stock? LLCs are a good example. How does your business compete when it doesn’t have access to the same tools? Synthetic equity is becoming an increasingly popular answer.

Synthetic equity refers to any type of incentive plan where the value delivered to participants fluctuates based on the value of the enterprise. For corporations, the most common tools are Continue reading

Startup Equity: Comparing Your “Currency” to a Competitor’s (Part 4 of an n part series)

untitledComparing base bay is relatively easy, equity not so much. A dollar is a dollar. And, if a dollar isn’t a dollar (let’s say it’s a Franc), there are published exchange rates to help convert values. But, with equity compensation, the base currency is your stock, and its value is not easily translated (or even agreed upon). This fundamental disconnect is one of the most challenging issues faced by anyone dealing with equity compensation at a start-up.

Let’s start with the oversimplified example above. There are exchange rates from dollars to francs, but they are not as consistent as the prices available for Continue reading

Broadway Acts on Sharing Success

untitled12You build it. You buy it. This may become the new mantra on Broadway. The original cast of Hamilton was recently followed by the new cast of Disney’s Frozen in receiving a share of the success of the shows they helped create. Similar to a great tech company building towards an IPO, a Broadway company has to do a whole lot of work before it ever gets to the starting line. Beyond the original idea, words and songs are the testing, tweaks, enhancements and embellishments that can make or break a show.

For years the formula worked like this. Continue reading

OMG! You Were Right All Along!

untitled11Remember that time you spent weeks modeling a new incentive plan only to have it shot down? They explained that any goals needed to be based on RESULTS! You maintained that the reason interim goals were included, was to ensure that success could be achieved and communicated throughout the process.

Remember that other time you explained to your managers that they needed to have frequent conversations on the new pay for performance program? And, when it didn’t work they told you Continue reading