My current company, Gusto, has a different approach. When employees leave the company after three years, their 3-month post-termination exercise window disappears and they have the full 10 years from grant date to exercise. It gives them more time to decide whether they want to do it. Josh Reeves, Gusto’s CEO and co-founder put it this way: “The right thing to do is to treat your employees like true owners of the business. We don’t want to constrain employees by “golden handcuffs” — they don’t stay simply to keep their stock options, and they’re not forced to spend money (which they may not have) exercising within three months of leaving. Our goal is to put the power and flexibility into the hands of our employees. The standard equity packages are slowly changing, and we’re excited to be part of this new wave of treating the employee as a true owner of the business.”
If you work hard for three years, you’ve earned those options, we think this is the fair thing to do for our employees. Here’s Gusto’s crash course to offering equity that shows entrepreneurs how to roll out an equity plan that’s in line with their business model, growth goals, and of course, the core values that drive how they’re building their team.
My former company, DocuSign, where I was CFO for six years, organized a managed secondary program. To balance the retention vs. reward goals, we capped the amount and percent of vested options each employee could sell. The program provided a big pressure valve relief as everyone has their own set of life needs—homes for their families, debt hanging over their heads, a sick parent, and so on.
We realized that, without having provided the employees with an outlet for some liquidity, they would have most likely found their own way in a treacherous secondary market, where they risked selling their shares at a deep discount, perhaps 50% of what they should have gotten.
Often, employees don’t have the experience of sophisticated buyers; they lack complete financial information and sometimes have difficulty expressing the strategy and vision of the company that justifies the real value.
And they would have done so while running afoul of company policy from selling outside of a structured program. Furthermore, should our employees have gone it alone on the secondary market, the company risked seeing those shares fall into the hands of new shareholders whom we don’t know anything about nor had any basis of trust for how they might behave.
Unfortunately, DocuSign didn’t take the extra step of extending the exercise period to let long-term employees keep vested options after they left.
We as leaders must protect the value that is created—it’s our fiduciary duty. All boards should be in support of extended option exercise and managed secondary programs.
Building great companies and being a great leader is hard and changing the way things are done takes courage and conviction. That’s the challenge I give to every company and board. I hope you all accept it and help me drive change. It’s the right thing to do.