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The Wealthfront Equity Plan (Stanford GSB, March 2016)
- Wealthfront Equity Plan Playbook for Owners March 8, 2016
- How do you attract and retain the best employees?
- CHALLENGING WORK ENVIRONMENT ENGAGING CULTURE COMPELLING EQUITY INCENTIVES 1 2 3
- Equity incentives must both ATTRACT NEW EMPLOYEES RETAIN OUTSTANDING EMPLOYEES AND
- Plan approach must be rational and equitable
- ©2014 Wealthfront Inc. 6 Over the past 25 years… • Our founder, Andy Rachleff, designed a plan that accomplishes both goals at an appropriate level of dilution • The plan has become known as The Wealthfront Equity Plan • Simple, transparent & fair, it has now been adopted in various forms by a number of companies at varying stages.
- ©2014 Wealthfront Inc. 7 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
- A compelling equity compensation plan has four types of grants PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
- Let’s first focus on new hires PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
- ©2014 Wealthfront Inc. 10 New Hire Grants • List all functions & expected number of people to be hired • Next, determine the market rates to hire these individuals • Let’s look at some examples
- ©2014 Wealthfront Inc. 11 New Hire Scenario #1
- ©2014 Wealthfront Inc. 12 New Hire Scenario #2
- ©2014 Wealthfront Inc. 13 New Hire Scenario #3
- ©2014 Wealthfront Inc. 14 Example New Hire Budget Create an “equity budget” to calculate total dilution for new hires
- Next, let’s focus on promotions PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92%
- ©2014 Wealthfront Inc. 16 Promotion Grants • Employees who have been promoted need to be at market rate for their new position • Two scenarios • The person being promoted has equity below today’s market rate • The person being promoted has equity above today’s market rate.
- ©2014 Wealthfront Inc. 17 Promotion Scenario: Employee has less equity
- ©2014 Wealthfront Inc. 18 Promotion Scenario: Employee has more equity
- ©2014 Wealthfront Inc. 19 Example Performance Budget
- Now let’s focus on performance PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5%
- ©2014 Wealthfront Inc. 21 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
- ©2014 Wealthfront Inc. 22 Performance Scenario
- ©2014 Wealthfront Inc. 23 Example Performance Budget
- Finally, let’s focus on evergreen PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5% 0.125%
- ©2014 Wealthfront Inc. 25 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
- ©2014 Wealthfront Inc. 26 Evergreen Scenario
- ©2014 Wealthfront Inc. 27 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
- ©2014 Wealthfront Inc. 28 Evergreen Example Budget
- Add up all grant dilution PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5% 0.125% 1.4%+ + +
- Total Dilution 3.945% (well within acceptable range of 3-5%)
- ©2014 Wealthfront Inc. 31 SOURCE Source Title