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Wealthfront Equity Plan
Playbook for Owners
wealthfront.com
How do you attract and
retain the best employees?
CHALLENGING
WORK
ENVIRONMENT
ENGAGING
CULTURE
COMPELLING
EQUITY
INCENTIVES
1
2 3
ATTRACT
RETAIN
Equity incentives must both
ATTRACT NEW
EMPLOYEES
RETAIN
OUTSTANDIN
G
EMPLOYEES
AND
Plan approach must be
RATIONAL & EQUITABLE
Over the past 25 years…
6
 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
 Company
– Consumer Internet
– 50 employees
– San Francisco Bay Area
 Staffing Goal
– Grow employee base to
100 by end of next year
Let’s Start With An Example Company
7
2X
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
 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
New Hires
10
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
11
CASH $ in Thousands
SF Bay Area
Per
centile
Sala
ry
Equ
ity
75
th
$1
30k
0.1
05%
25t
h
$11
4k
0.0
36%
Startup Compensation Tool: Example 1
Software Engineer Level 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
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
Average 0.
07%
EQUITY
% of Company
12
CASH $ in Thousands
SF Bay Area
Per
centile
Sala
ry
Equ
ity
75
th
$1
28k
0.1
05%
25t
h
$1
03k
0.0
12%
Startup Compensation Tool: Example 2
Product Management Level 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
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
Average 0.0
8%
EQUITY
% of Company
13
CASH $ in Thousands
SF Bay Area
Per
centile
Sala
ry
Equ
ity
75
th
$2
33k
0.0
86%
25t
h
$1
05k
0.0
04%
Startup Compensation Tool: Example 3
Sales Rep 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
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
Average 0.0
4%
EQUITY
% of Company
Repeat This Process for All Hires Listed
Create an “Equity Budget” to Calculate Total Dilution for New Hires
14
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
x =
Next, let’s focus on promotions:
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
1.92%
 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.
Promotions
17
CASH $ in Thousands
Promotion Scenario 1: Below Market
Software Engineer Manager 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
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
Originally hired at 0.06% equity
Per
centile
Sala
ry
Equ
ity
75
th
$1
54k
0.1
34%
25t
h
$1
34k
0.0
66%Average 0.10
5%
Promoted Position Rate
Grant the difference between promoted rate
and original grant: 0.045%
18
CASH $ in Thousands
Per
centile
Sala
ry
Equ
ity
75
th
$1
30k
0.1
05%
25t
h
$11
4k
0.0
36%
Promotion Scenario 2: Above Market
Software Engineer Manager 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
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
Average 0.07
%
EQUITY
% of Company
Early employee,
hired at 0.15% equity
Current Position Rate
Per
centile
Sala
ry
Equ
ity
75
th
$1
54k
0.1
05%
25t
h
$1
34k
0.0
36%Average 0.10
%
Promoted Position Rate
Grant the difference between promoted
position and current position rate: 0.03%
Example Promotion Increase
19
To Be Promoted Starting Equity Market Rate for
Promoted Position
Additional
Grant
Engineering Manager 0.06% 0.105% 0.045%
Scenario 1: Current Equity is Below the Promoted Position
Equity
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%
Scenario 2: Current Equity is Above the Promoted Position
Equity
# of Promotions Average Incremental Grant / Promotion Total Dilution
5 0.1% 0.5%
Total Equity Dilution for All
Promotions
x =
Now let’s focus on performance:
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
1.92% 0.5%
 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
22
CASH $ in Thousands
SF Bay Area
Per
centile
Sala
ry
Equ
ity
75
th
$1
75k
0.1
76%
25t
h
$11
8k
0.0
45%
Performance Scenario
Product Management Manager 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
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
Average 0.11
%
EQUITY
% of Company
Grant 50% of the average: 0.055%
Example Performance Increase
23
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%
Total Equity Dilution for
Performance
Equity Dilution for Our Example
x =
Finally, let’s focus on evergreen:
PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
1.92% 0.5% 0.125%
 Goal: retain employees for the
long term
 Avoid vesting cliffs so they
don't look around for new
opportunities
Evergreen
26
CASH $ in Thousands
SF Bay Area
Per
centile
Sala
ry
Equ
ity
75
th
$1
30k
0.1
05%
25t
h
$11
4k
0.0
36%
Evergreen Scenario
Software Engineer Level 3 51 - 100 SF Bay Area
JOB FUNCTION JOB LEVEL COMPANY SIZE REGION
Try it Now »
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
Average 0.
07%
EQUITY
% of Company
Grant 25% of the average each year
starting at 2.5 years: 0.018%
 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
Evergreen: Smooth Out Grants & Avoid Cliffs
 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
Initial Grant
EQUITY
TENURE
years
Example Evergreen Increase
28
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
Total Equity Dilution for Evergreen
Employees
Equity Dilution for Our Example
x =x
Add up all grant dilution
PROMOTIONS PERFORMANCE EVERGREENNEW 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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Wealthfront Equity Plan

  • 1. Wealthfront Equity Plan Playbook for Owners wealthfront.com
  • 2. How do you attract and retain the best employees?
  • 4. Equity incentives must both ATTRACT NEW EMPLOYEES RETAIN OUTSTANDIN G EMPLOYEES AND
  • 5. Plan approach must be RATIONAL & EQUITABLE
  • 6. Over the past 25 years… 6  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
  • 7.  Company – Consumer Internet – 50 employees – San Francisco Bay Area  Staffing Goal – Grow employee base to 100 by end of next year Let’s Start With An Example Company 7 2X
  • 8. A compelling equity compensation plan has four types of grants: PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
  • 9. Let’s first focus on new hires: PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
  • 10.  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 New Hires 10 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
  • 11. 11 CASH $ in Thousands SF Bay Area Per centile Sala ry Equ ity 75 th $1 30k 0.1 05% 25t h $11 4k 0.0 36% Startup Compensation Tool: Example 1 Software Engineer Level 3 51 - 100 SF Bay Area JOB FUNCTION JOB LEVEL COMPANY SIZE REGION Try it Now » 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 Average 0. 07% EQUITY % of Company
  • 12. 12 CASH $ in Thousands SF Bay Area Per centile Sala ry Equ ity 75 th $1 28k 0.1 05% 25t h $1 03k 0.0 12% Startup Compensation Tool: Example 2 Product Management Level 3 51 - 100 SF Bay Area JOB FUNCTION JOB LEVEL COMPANY SIZE REGION Try it Now » 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 Average 0.0 8% EQUITY % of Company
  • 13. 13 CASH $ in Thousands SF Bay Area Per centile Sala ry Equ ity 75 th $2 33k 0.0 86% 25t h $1 05k 0.0 04% Startup Compensation Tool: Example 3 Sales Rep 3 51 - 100 SF Bay Area JOB FUNCTION JOB LEVEL COMPANY SIZE REGION Try it Now » 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 Average 0.0 4% EQUITY % of Company
  • 14. Repeat This Process for All Hires Listed Create an “Equity Budget” to Calculate Total Dilution for New Hires 14 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 x =
  • 15. Next, let’s focus on promotions: PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92%
  • 16.  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. Promotions
  • 17. 17 CASH $ in Thousands Promotion Scenario 1: Below Market Software Engineer Manager 51 - 100 SF Bay Area JOB FUNCTION JOB LEVEL COMPANY SIZE REGION Try it Now » 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 Originally hired at 0.06% equity Per centile Sala ry Equ ity 75 th $1 54k 0.1 34% 25t h $1 34k 0.0 66%Average 0.10 5% Promoted Position Rate Grant the difference between promoted rate and original grant: 0.045%
  • 18. 18 CASH $ in Thousands Per centile Sala ry Equ ity 75 th $1 30k 0.1 05% 25t h $11 4k 0.0 36% Promotion Scenario 2: Above Market Software Engineer Manager 51 - 100 SF Bay Area JOB FUNCTION JOB LEVEL COMPANY SIZE REGION Try it Now » 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 Average 0.07 % EQUITY % of Company Early employee, hired at 0.15% equity Current Position Rate Per centile Sala ry Equ ity 75 th $1 54k 0.1 05% 25t h $1 34k 0.0 36%Average 0.10 % Promoted Position Rate Grant the difference between promoted position and current position rate: 0.03%
  • 19. Example Promotion Increase 19 To Be Promoted Starting Equity Market Rate for Promoted Position Additional Grant Engineering Manager 0.06% 0.105% 0.045% Scenario 1: Current Equity is Below the Promoted Position Equity 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% Scenario 2: Current Equity is Above the Promoted Position Equity # of Promotions Average Incremental Grant / Promotion Total Dilution 5 0.1% 0.5% Total Equity Dilution for All Promotions x =
  • 20. Now let’s focus on performance: PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5%
  • 21.  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
  • 22. 22 CASH $ in Thousands SF Bay Area Per centile Sala ry Equ ity 75 th $1 75k 0.1 76% 25t h $11 8k 0.0 45% Performance Scenario Product Management Manager 51 - 100 SF Bay Area JOB FUNCTION JOB LEVEL COMPANY SIZE REGION Try it Now » 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 Average 0.11 % EQUITY % of Company Grant 50% of the average: 0.055%
  • 23. Example Performance Increase 23 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% Total Equity Dilution for Performance Equity Dilution for Our Example x =
  • 24. Finally, let’s focus on evergreen: PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5% 0.125%
  • 25.  Goal: retain employees for the long term  Avoid vesting cliffs so they don't look around for new opportunities Evergreen
  • 26. 26 CASH $ in Thousands SF Bay Area Per centile Sala ry Equ ity 75 th $1 30k 0.1 05% 25t h $11 4k 0.0 36% Evergreen Scenario Software Engineer Level 3 51 - 100 SF Bay Area JOB FUNCTION JOB LEVEL COMPANY SIZE REGION Try it Now » 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 Average 0. 07% EQUITY % of Company Grant 25% of the average each year starting at 2.5 years: 0.018%
  • 27.  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 Evergreen: Smooth Out Grants & Avoid Cliffs  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 Initial Grant EQUITY TENURE years
  • 28. Example Evergreen Increase 28 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 Total Equity Dilution for Evergreen Employees Equity Dilution for Our Example x =x
  • 29. Add up all grant dilution PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5% 0.125% 1.4%+ + +
  • 30. (well within acceptable range of 3–5%) Total Dilution: 3.945%