Now You DON’T See It

untitled13The image below is from a recent post by famed author and Behavioral Economist Dan Ariely. Take a quick look to see if you can figure it out in 30 seconds or less.

Ariely2Reports tell us that 55% of people spend less than 15 seconds reviewing any piece of content on the internet. I have given you twice as much time. Have you figured out the answer?

It is said a picture is worth a thousand words. The digital medium we all use today makes sharing images easier and Continue reading

Stop Building Sinking Ships

untitled69Last week esteemed fellow Comp Café writer, Stephanie Thomas, Ph.D., wrote an article asking, “Should You Scrap Your Long-Term Incentive Plans?” I commented that LTI programs are for more likely to be used improperly than correctly. But the real question is, why?

Why do we continue to design and implement programs that are ineffective? More important, why do plans at so many companies look almost exactly like the plans at very different companies? It’s kind of like watching your competitor’s ship sink and deciding to build Continue reading

ESPP: The Ugly Duckling?

untitled 37We’ve all heard some version of Hans Christian Andersen’sThe Ugly Duckling at some point in our lives. For the record, the original is sadder and more intense than I remember. The summary is this. A bird is hatched. It is ugly and misunderstood. Others ostracize it without even knowing what it is. It doesn’t fit well anywhere and often has to make its way. Later it grows into a beautiful swan, and everyone admires it. The end.

Welcome to the world of Employee Stock Purchase Plans (ESPPs). If you are at a company that is not publicly traded or is unlikely to ever have an IPO, this post may be Continue reading

Entertaining Ways to Apply Executive Pay Rules

untitled 54Executive compensation is always in the spotlight. The pay levels for the highest paid executive can truly be astounding to “regular” people. In truth, they are often astounding to executive compensation professionals, including the consultants who make the recommendations. In general, most pay packages can be justified as being competitive in the market, or a small percentage of the value of the company or based mainly on the performance of the individual and/or company. This type of justification often rings hollow.

What if we applied some of the current “best practices” to nontraditional professions such as entertainment and sports? Dwayne “The Rock” Johnson is the Continue reading

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