This is a cute system and I'm not going to be against a company having a secret bonus that might give employees free money. But c'mon, don't write a blog post about how this is great. This system is much worse than equity. This is basically like a lottery that might give extra money to employees lucky enough to be presently employed in case the magic numbers hit.<p>The whole point of equity is to incentivize people to create value for the company and give them upside in case the company does grow a lot (how people personally value equity is another story, but the incentive is the same). This plan doesn't do that at all...<p>1) The company says it has no plans to exit so there really isn't an incentive for an employee to think their contributions might return them upside.<p>2) The 5% figure for all employees is tiny. A growing startup might give away 5-10% in equity, <i>per year</i>, to employees via stock grants. This is 5% total. Every year that goes by employees <i>should</i> own more of the company because they are doing more of the work, a fixed number makes no sense.<p>3) Past employees who might have made significant contributions and created tons of value get nothing. Do you think if any founders leave they are giving up their real equity?<p>> it’s a great alternative to the organizational complexity of option grants, acceleration, strike prices, conversion into shares, private markets vs. public markets, dilution by outside parties, partial vesting, etc.<p>So no, it isn't a great alternative to equity, it does completely different things. It is a random bonus that nobody can expect which is loosely correlated with whatever value they may have contributed. This is certainly better than no bonus, but maybe is worse than a good bonus (though they might also have other bonuses, I have no idea).
If you have no intension of every going public or selling the company do you still fall inside the current definition of a startup?<p>It seems unfair, if the founders are able to sell their equity privately.<p>Overall, in a startup my view is that equity offsets the risk that the company might just disappear. You're taking on that risk, you should get to keep that equity compensation (even if you leave).<p>From the employers point of view, equity should help motivate staff so they don't just consider their own job security, but overall company success.<p>If you're never going to IPO, perhaps do that via dividends? Or other profit sharing mechanism.
This is an unbelievably bad plan to the point of sending a strong negative signal to former employees or any potential hires.<p>Sure a typical option plan is loaded with cliff, restrictions on sale, vesting/expiration but at least end of the day you end up owning a "share" of the company however unpreferential it might be. Something which has at least some form of legal precedent.<p>This on the other hand riducules the intelligence of an average employee and is equivalent to playing a near-sociopathic trick where everyone is "equal" so you better not ask for higher share or salary.<p>To comapre this in same light as options/RSU or even bonuses is an insult.
I think it makes a lot more sense to give lower-level employees yearly performance bonuses than illiquid equity. Lower-level employees generally don't have sufficient information or perspective about the company's performance or long-term outlook to make an informed decision about exercising illiquid options. As a result, most low-level employees value illiquid equity at 0 these days. On the other hand, their individual, short-term performance can be evaluated according to objective standards much more easily than a similar evaluation can be made for management.<p>Asking an employee being promoted to management to give up the possibility of future performance bonuses in return for equity is also an effective way of making sure management is aligned with the long-term success of the company.
For non-profitable companies, option/equity/eventual-bonus like this one are good ways to dingle the carrot to motivate people. For profitable companies that have no plan to get liquidated, an annual dividend or bonus is fairer.
Another alternative that is not often discussed in technology circles is to form cooperative businesses where workers wholly own the business and make democratic decisions about its governance. Why should the workers, who produce the value, not be paid according to their contributions? Why do we need management to tell us what to do and siphon off the surplus profits in the process?
I've always been curious about trying a system that rewarded people for the value they created now, instead of owning shares/options and waiting for a liquidity event. Bonuses are the traditional option I guess, but is there anything else? How else might you distribute a portion of funds earned by the company in a meaningful manner to employees?
Kudos for trying to think outside the box here.<p>I couldn't see any explanation on how this idea compares to one of the biggest issue with options, namely leaving the company before it gets sold.<p>So say I work at basecamp for 5 years, and then leave to work somewhere else. What happens to my 5 units?
Maybe I'm not familiar with how equity works but this seems to have all sorts of weird properties like how after 5 years the amount of money you would get starts to decrease (assuming that the total number of units rises, which in this system it is almost assured to), the amount of money you get decreases as more people join, and if you leave you get nothing at all. The cap on what percentage employees get seems weird to me and it really messes with the math in a way that seems to screw the employees.
I like the idea as a way to distribute gains to employees. Wondering why the units are limited to integer years rather than allowing constant accrual up to the 5 units.<p>Additionally, it seems unfair that employee units go immediately to 0 upon leaving, rather than some sort of decay. They're saying that employees contributed to the success and deserve a bonus, why would that contribution be worth nothing the minute they leave? Something like an exponential decay on the units seems much more equitable.
Even if they don't decide to go public, equity can pay dividends. Maybe it was just me but it felt like the founders are just trying maximize their upside by dangling a small bone for employees. But let'a not forget who this is benefiting. I'd love to hear from some Basecampers on this.