wealthfront equity plan

Wealthfront Equity PlanPlaybook for Owners

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How do you attract andretain the best employees?

CHALLENGINGWORK

ENVIRONMENT

ENGAGINGCULTURE

COMPELLINGEQUITY

INCENTIVES

1

2 3

ATTRACT

RETAIN

Equity incentives must both

ATTRACT NEW

EMPLOYEES

RETAIN OUTSTANDIN

GEMPLOYEES

AND

Plan approach must beRATIONAL & 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 EVERGREEN

NEW HIRES

Let’s first focus on new hires:

PROMOTIONS

PERFORMANCE EVERGREEN

NEW 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

Total 50

11

CASH $ in Thousands

SF Bay Area

Percentile

Salary

Equity

75th

$130k

0.105%

25th

$114k

0.036%

Startup Compensation Tool: Example 1Software 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

Percentile

Salary

Equity

75th

$128k

0.105%

25th

$103k

0.012%

Startup Compensation Tool: Example 2Product 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 0.08%

EQUITY % of Company

13

CASH $ in Thousands

SF Bay AreaPer

centileSal

aryEqu

ity

75th

$233k

0.086%

25th

$105k

0.004%

Startup Compensation Tool: Example 3Sales 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 0.04%

EQUITY % of Company

Repeat This Process for All Hires ListedCreate 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 0.10Product 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 0.04Business Development – Level 3 2 0.06 0.06

Total 50 1.92%

x =

Next, let’s focus on promotions:

PROMOTIONS

PERFORMANCE EVERGREEN

NEW 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 MarketSoftware 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

Percentile

Salary

Equity

75th

$154k

0.134%

25th

$134k

0.066%Average 0.105%

Promoted Position Rate

Grant the difference between promoted rate and original grant: 0.045%

18

CASH $ in Thousands

Percentile

Salary

Equity

75th

$130k

0.105%

25th

$114k

0.036%

Promotion Scenario 2: Above MarketSoftware 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

Percentile

Salary

Equity

75th

$154k

0.105%

25th

$134k

0.036%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 EquityMarket 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 EVERGREEN

NEW 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

Percentile

Salary

Equity

75th

$175k

0.176%

25th

$118k

0.045%

Performance ScenarioProduct 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 EVERGREEN

NEW 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

Percentile

Salary

Equity

75th

$130k

0.105%

25th

$114k

0.036%

Evergreen ScenarioSoftware 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 yearstarting at 2.5 years: 0.018%

Start offering additional stockat 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 yearsGranting small amounts every

year avoids cliffs

Initial Grant

EQUITY

TENUREyears

Example Evergreen Increase

28

Level EvergreenGrants

Average Incremental Grant / Level

% GrantedPer Year

AdditionalGrant

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 EVERGREEN

NEW HIRES

1.92%

0.5%

0.125%

1.4%

+ + +

(well within acceptable range of 3–5%)

Total Dilution:3.945%

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