Wealthfront Equity Plan

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  • Wealthfront Equity Plan Playbook for Owners wealthfront.com
  • How do you attract and retain the best employees?
  • 1 2 3 ATTRACT RETAIN
  • Equity incentives must both ATTRACT NEW EMPLOYEES RETAIN OUTSTANDING EMPLOYEES AND
  • Plan approach must be RATIONAL & EQUITABLE
  • Over the past 25 years… 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 *
  • Let’s Start With An Example Company Company Consumer Internet 50 employees San Francisco Bay Area Staffing Goal Grow employee base to 100 by end of next year * 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
  • 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 * 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
  • Startup Compensation Tool: Example 1 * CASH $ in Thousands JOB FUNCTION JOB LEVEL COMPANY SIZE REGION 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 Percentile Salary Equity 75th $130k 0.105% 25th $114k 0.036% Average 0.07%
  • Startup Compensation Tool: Example 2 * CASH $ in Thousands JOB FUNCTION JOB LEVEL COMPANY SIZE REGION 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 Percentile Salary Equity 75th $128k 0.105% 25th $103k 0.012% Average 0.08%
  • Startup Compensation Tool: Example 3 * CASH $ in Thousands JOB FUNCTION JOB LEVEL COMPANY SIZE REGION 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 Percentile Salary Equity 75th $233k 0.086% 25th $105k 0.004% Average 0.04%
  • Repeat This Process for All Hires Listed Create an “Equity Budget” to Calculate Total Dilution for New Hires * x = Function Hires % Per Employee Dilution Software Engineer – Level 3 10 0.07 0.70 Software Engineering Manager 1 0.10 0.10 Product 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 0.04 Business Development – Level 3 2 0.06 0.06 Total 50 1.92%
  • Next, let’s focus on promotions: PROMOTIONS PERFORMANCE EVERGREEN NEW HIRES 1.92%
  • Promotions 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.
  • Promotion Scenario 1: Below Market * CASH $ in Thousands JOB FUNCTION JOB LEVEL COMPANY SIZE REGION 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 Promoted Position Rate Percentile Salary Equity 75th $154k 0.134% 25th $134k 0.066% Average 0.105%
  • Promotion Scenario 2: Above Market * CASH $ in Thousands JOB FUNCTION JOB LEVEL COMPANY SIZE REGION 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 Current Position Rate Promoted Position Rate Percentile Salary Equity 75th $130k 0.105% 25th $114k 0.036% Average 0.07% Percentile Salary Equity 75th $154k 0.105% 25th $134k 0.036% Average 0.10%
  • Example Promotion Increase * Scenario 1: Current Equity is Below the Promoted Position Equity Scenario 2: Current Equity is Above the Promoted Position Equity Total Equity Dilution for All Promotions x = To Be Promoted Starting Equity Market Rate for Promoted Position Additional Grant Engineering Manager 0.06% 0.105% 0.045% 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% # of Promotions Average Incremental Grant / Promotion Total Dilution 5 0.1% 0.5%
  • Now let’s focus on performance: PROMOTIONS PERFORMANCE EVERGREEN NEW HIRES 1.92% 0.5%
  • Performance 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 Scenario * CASH $ in Thousands JOB FUNCTION JOB LEVEL COMPANY SIZE REGION 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 Percentile Salary Equity 75th $175k 0.176% 25th $118k 0.045% Average 0.11%
  • Example Performance Increase * Total Equity Dilution for Performance Equity Dilution for Our Example x = 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%
  • Finally, let’s focus on evergreen: PROMOTIONS PERFORMANCE EVERGREEN NEW HIRES 1.92% 0.5% 0.125%
  • Evergreen Goal: retain employees for the long term Avoid vesting cliffs so they don't look around for new opportunities
  • Evergreen Scenario * CASH $ in Thousands JOB FUNCTION JOB LEVEL COMPANY SIZE REGION 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 Percentile Salary Equity 75th $130k 0.105% 25th $114k 0.036% Average 0.07%
  • Evergreen: Smooth Out Grants & Avoid Cliffs Start offering additional stock at 2.5 years Give 1/4 of current market offer for their current job each year on anniversary of first evergreen grant In this case, we grant 0.018% per year (0.07% ÷ 4) Each grant vests over 4 years Granting small amounts every year avoids cliffs EQUITY TENURE years
  • Example Evergreen Increase * Total Equity Dilution for Evergreen Employees Equity Dilution for Our Example x = x Level Evergreen Grants Average Incremental Grant / Level % Granted Per Year Additional Grant 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
  • 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
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