We had decided a while back to create an option pool for employees. We told everybody about it and even sent out a signed document committing to doing it. We were serious about it, but we’ve been slow to make it happen. In fact, a year-and-a-half slow. Finally, all the planets lined up and on Tue 12/16, we kicked off the next step of the process which is to decide how to assign the options to current and future employees.
Usually stock option plans are pretty common in young technology companies like Nearsoft. What makes it noteworthy in our case is that the company operations and the bulk of our employees are in Mexico, where less than 2% of private companies have any kind of employee participation.
The other remarkable feature is that in Nearsoft’s case, the employees are deciding how to divvy up the pie. The Operations Board, which is made up of employees, will make a proposal and then the rest of us will vote (at least, I think that’s how is going to happen). I’ll say more about this Board in another post.
The original plan was to make the employee pool 20% of the shares in Nearsoft but we then upped it to 33%. Originally, we had been thinking along traditional lines and had planned to split the company as 60% for investors, 20% for managers and 20% for employees. Later we decided that this norm did not fit Nearsoft and it was more fair to increase the size of the employee pool. There are a couple of reasons for this.
For one, the people participating as "investors" and "managers" would have been pretty much one and the same. So, for all practical purposes my partners and I would have ended up with 80% of the company.
The other reason has to do with the distinction between "managers" and "employees" and the fact that it gives "managers" preferential treatment. In our case, we aspire to have all our employees be leaders and add value to the company beyond their individual contribution. The presumption that "managers" contribute more is not valid. One manager may contribute "just enough" while a tester turns out to come up with a way of saving the company and our clients a ton of money or time.
If tomorrow we hire an awesome VP of Sales and she ends up helping grow the company by a zillion percent, I am sure that the employees as a group will see that and assign her the appropriate percentage of ownership. Of course, my presumption is that the final plan will include a performance component (but I am not sure that it will). I wouldn’t mind agreeing to give this super-VP a big chunk of the company, but I would like to see the results first; her percentage of the company should not be based solely on how long she managed to stick around.
Yesterday, we presented the plan to everybody (well, everybody who showed up to the meeting). This included explaining the distinction between vested options vs owned shares. We’re spoiled in Silicon Valley in that around here even grammar school kids "know" about the whole options/share thing. But this is not a universally well understood concept outside this place (even elsewhere in the US).
We also made it clear that it is a gamble of sorts: the big "liquidity event" may come or it may not. It is up to us to make the company valuable first and cash in later. To really get a premium price for the company, be it in the private or public market, we’ll first have to turn it into a world-class shiny gem. Until then, we’ll do well to enjoy the ride.