| I don't think equity is a good way of paying employees. There, I said it. I know this is contrary to Silicon Valley wisdom, but I've studied the alternatives and I think I'm right on this one. Profit sharing (a larger percentage, but annually dispersed rather than permanent) is a much better method of upside compensation. I actually think that typical equity allocations in VC-istan fall into the uncanny valley and become demotivators. A nickel (0.05%) of a 50-person company isn't ownership. It's a consolation prize (severance) if your job is sold away in an acquisition. Also, I think startup equity exacerbates the inequalities. Let's say that a software engineer (someone who does actual work) makes $120k while some politics-playing non-technical VP (who doesn't show up half the time, but the CEO likes him) makes $150k. That's unfair, but it's not going to stop people who are otherwise enthusiastic about their jobs. They'll find it mildly annoying but get back to work and forget about it in a couple of days. Replace those numbers with 0.05% and 1.0%, however, and you get a different story. You could release all the salaries at a VC-funded startup and it wouldn't stop work. If the equity table came out, the engineers would all leave on the same day and it would be chaos. That's why the cap table is hidden (a disgusting practice when one considers that equity is billed as ownership; by the way, someone should totally Wikileaks a bunch of startup cap tables.) I don't even think it's meaningful to consider yourself an owner-- at all-- of something if you don't get to see the capitalization table or interact directly with investors. I'd rather have a market-level salary, to be blunt. There are levels of equity that justify the typical startup's pay cut, but no (non-founding) engineer in Silicon Valley gets anything close to that. I worked out how to make profit-sharing more fair: http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . It can be done, but it requires a dramatically different style (one less vampiric) than a typical organization. |
"In June 2002, [Brian] Reid became Director of Operations at Google. He was fired in February 2004, nine days before the company's IPO was announced, allegedly costing him 119,000 stock options with a strike price of $0.30, which would have been worth approximately $10 million at the $85 IPO price."
Still being litigated....