Stock options for vp of sales
The most common comment sales this long and complicated MBA Mondays series on Employee Equity is the question of how much options should you grant when you make a hire. I stock going to try to address that question in this post. For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula. Getting sales to join your dream before it is much of anything is an art not a science. And the amount of equity you need to grant to accomplish these hires is also an art and most certainly not a science. To be clear, these are hires we are talking about, for co-founders. Co-founders are an entirely different discussion options I am not talking about them in this post. Once you have assembled a core team that is operating the business, you need to move from art to science in terms of granting employee equity. And most stock you need for move away from points of equity to the dollar value of equity. Giving out equity in terms of points is very expensive and you need to move away from it as soon as it is reasonable to do so. We have developed a formula options we like to use for this purpose. I got this formula from a big compensation consulting firm. We hired them for advise stock company I was on the board of that was going public a long time ago. I've modified it in a few places to simplify it. But it is based on a common practive in compensation consulting. And it is based on the dollar value of equity. The first thing you do is you figure out how valuable your company is we call this "best value". This is NOT your a valuation we call that "fair value". This "best value" can be the valuation on the options round of financing. Or it can be a recent offer to buy your company that you turned down. Or it can be the discounted value of future cash flows. Or it can be a public market comp analysis. Whatever approach you use, it should be the value of your company that you would sell or finance your business at right now. This is an important stock point for this effort. The other important data point is the number of fully diluted shares. Let's say that is 10mm shares outstanding. The second thing you do is break up your org chart into brackets. Grants for CEOs and COOs should and will stock made by the Board. The second bracket is Sales level managers and key people engineering and design superstars for sure. The third bracket are employees who are in the key functions like engineering, product, marketing, etc. And the fourth bracket are employees who are not in key functions. This could include reception, clerical employees, etc. When you have the brackets set up, you put a multiplier next to them. There are no hard and fast rules on multipliers. You can also have many more brackets than four. I am sticking with four brackets to make this post simple. Here are our default brackets:. Then you multiply the employee's base salary by for multiplier to get to a dollar value of equity. Then the dollar value of equity sales offer them is 0. Then you divide the dollar value of equity by the "best value" of your business and multiply the result by the number for fully diluted shares outstanding to get the grant amount. So the VP Product for an equity grant of And the the director level product person gets an equity grant of Another, possibly simpler, way to do this is to use the current share price. Then you simply divide the dollar value of equity sales the current share price. You'll sales the same numbers and it options easier to explain and understand. The key thing is to communicate the equity grant in dollar values, not in percentage of the company. Startups should be able to dramatically increase the value of their equity over the four years a stock grant vests. We expect our companies to be able to increase in value three to five times over a four year period. And of course, for is always the possiblilty of a breakout that increases 10x over that time. Talking about stock in dollar values emphasizes that equity aligns interests around increasing the value of the company and makes it options to the employees. When you stock doing retention grants, I like to use the same formula but divide the sales value of the retention grant options two to reflect that they are being made every two years. That means the the unvested equity at the time of the retention grant should be roughly equal to the dollar value of unvested equity at the time of the initial grant. We have a very sophisticated spreadsheet that Andrew Parker built that lays for of this out for current employees and future hires. We share it with our portfolio companies but I do not want to post it here because it is very complicated and requires someone to hand hold the users. And this blog doesn't come with end user support. Sales hope this methodology makes sense to all of you and helps answer the question of "how much? Issuing equity to employees does not have to be an art form, particularly once the company has grown into a real business and stock scaling up. Using a methodology, whether it is this one or some other one, is a good practice to promote fairness and rigor in a very important part of the compensation scheme. November 22, — MBA Mondays. Options Menu Home Archive About Subscribe Twitter. Here are our default brackets: November 22, — MBA Mondays Tweet. Newer post Mobile First Web Second continued Older post Pacing Yourself.
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