[powera]

What a terrible idea. If people don't want to stay for even a year, they don't need equity in a startup. That's what salary is for. And getting 1/4000th of the first year's equity grant after the first month won't motivate anybody who understands math, which is probably a trait that startups are looking for.

[Firehed]

The idea is that the longer you stay with the company, the larger percent of your remaining equity you get per period. Hockey-stick equity, if you will ;)

I think it's actually a pretty reasonable approach. I've had people straight-up tell me during interviews that they're leaving their current position because they've reached either their one-year cliff or their four-year package and want a new opportunity with potentially higher gains. While leaving after four years if your options package isn't extended isn't unreasonable, the one-year cliff does seem a rather broken approach for keeping all but the most-dedicated people more than a year.

Of course, if your employees don't want to stay more than year and are only doing so because of the vesting cliff, you probably have bigger problems that need sorting out. But let's assume that your employees are only going to stay 12 months no matter what - would you prefer to give them 25% of their options, or ~3.6%[1]?

That assumes that the exponential grant continues for the entire period, not just for the first year as the article suggests. I'd also be a bit concerned about possible tax implications of that approach; three years in you only have 31% of your stock, and you get about 10% of the total in the last month.

Here's a graph, assuming my math is right.

https://docs.google.com/spreadsheet/oimg?key=0AgIFMGYSPNuPdH...

Seems to me that this would be a pretty good way to get people to stay for longer than a year, the issue is when employees still leave early. With the cliff, there's one less shareholder around, helping the company stay under that magical 500-shareholder limit. You lose that benefit with the exponential grant.

[1] I've probably done the math wrong, but roughly solving m^48=100 (percent), getting about 1.1007^(month#) = total percent of equity granted at the end of that month

[tptacek]

I've had people straight-up tell me during interviews that they're leaving their current position because they've reached either their one-year cliff or their four-year package and want a new opportunity with potentially higher gains.

The person who told you "I'm looking because I just hit my first-year cliff" actually told you "DO NOT HIRE ME". Listen harder.

People do leave when they hit four years. Four years is a long time! Some teams are O.K. with this, but if you're not, there's no reason to mess with vesting to solve the problem; just grant them more of the employee pool to stay.

Everyone is always looking for better opportunities. That's fine. Be the best opportunity for everyone on your team, or get better at recruiting. Vesting can't help you with this problem, but it sure can hurt you.

[loceng]

Makes me wonder how hard they worked those 4 years, or perhaps just that last year they didn't necessarily care to be kept on afterward.

[j2labs]

If they were there four years without being let go, the company was clearly fine with the performance.

[tossit1234]

Makes me wonder about how their investment in effort has carried out over that time. I'm sorry, but X shares over Y time with additional investments of A, B or C, usually means X means a lot less (percentage-wise) for a continuation of effort.

[zaroth]

The 500-shareholder limit is not a problem for employee options. You just use RSUs, or similarly place restrictions on common stock from being traded until it is registered. (IANAL)