This is the version of my lecture on equity compensation, leveraging the Wealthfront Equity Plan, to help build an ownership culture at fast-growing companies. This was presented in class on Feb 6, 2018.

1. Building an Ownership Culture
Equity Compensation
February 6, 2018
Adam Nash
@adamnash

2. How do you attract and
retain the best employees?

3. CHALLENGING
WORK
ENVIRONMENT
ENGAGING
CULTURE
COMPELLING
EQUITY
INCENTIVES
1
2 3

4. Everyone needs to be an owner

5. Ownership & Productivity
• Self employed are unusual in labor statistics
• They have higher productivity
• They have higher satisfaction
• Self-employed trade current income for ownership

6. Discussing & allocating ownership is a
mission-critical activity
It requires diligence & regular attention

7. Equity incentives must both
ATTRACT NEW
EMPLOYEES
RETAIN
OUTSTANDING
EMPLOYEES
AND

8. Plan approach must be
rational and equitable

9. Example: Startup in Hypergrowth
• Company
• Consumer internet
• 50 employees
• San Francisco Bay Area
• Staffing Goal
• Grow employee base to 100 by end of the year

10. A compelling equity compensation plan
has four types of grants
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES

11. Let’s first focus on new hires
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES

12. New Hire Grants
• List all functions & expected
number of people to be hired
• Next, determine the market rates
to hire these individuals

13. Example New Hire Budget
Create an “equity budget” to calculate total dilution for new hires

14. Next, let’s focus on promotions
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
1.92%

15. Promotion Grants
• Employees who have been
promoted need to be at market
rate for their new position
• Simple Formula
• If the person has less equity
than market rate, grant them
the difference
• If the person has more equity
than market rate, grant them
the market rate difference
between the two levels

16. Example Performance Budget

17. Now let’s focus on performance
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
1.92% 0.5%

18. Performance Grants
• Give additional equity to a limited
number of people to reward
performance (Top 10-20%)
• Bump needs to feel large, but
maintain equitable nature of the
entire plan
• 50% of equity grant for their
current role, if hired today

19. Example Performance Budget

20. Finally, let’s focus on evergreen
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
1.92% 0.5% 0.125%

21. Evergreen Grants
• Goal is to retain employees for
the long term
• Avoid vesting cliffs so employees
to avoid artificial anxiety points to
stimulate interest in new
opportunities

22. Evergreen Scenario
• Start offering additional grants at
2.5 years. Predictable.
• Give 1/4 of current market offer
for their current role / title.
• In this case, 0.018% per year
(0.07% ÷ 4)
• Vests over 4 years
• Grant every year avoids cliffs

23. Evergreen Example Budget

24. Add up all grant dilution
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
1.92% 0.5% 0.125% 1.4%+ + +

25. Total Dilution
3.945%
(well within acceptable range of 3-5%)