![]() ![]() The key difference is you are separating the “refresh grant” from a bonus, or retrading, of the hire grant. So now, they once again have 2,500 options per year for years 1 to 4 and 1,250 options vesting in years 5 and 6. Instead, why not grant them the new 2,500 options that vest in two years – 50% in year 5 and 50% in year 6. This is a bonus in years 3 and 4 and a refresh in years 5 and 6. You just changed their first four year vesting package from 10,000 options to 11,250 options (2,812.5 options per year) and then left them with 625 in years 5 and 6. Now, in year 3 the employee in question vests a total of 3,125 options, in year 4 they vest a total of 3,125 options, in year 5 they now vest 625 options, and in year 6 they vest 625 options. Now, the company has increased in value, as has the option strike price, so the refresh grant is determined to be 25% of the original grant – or 2,500 options vesting monthly over four years, or 625 options per year. This person is doing great so management puts them in the annual option refresh cycle. That means that after one year, they get 25% of their options and then start vesting the remaining options monthly at a rate of 1/48 (208.3 options / month, or 2,500 / year.) On day 1 of year 3, the person has vested 50% of their options, or 5,000 of them and still has 5,000 left to vest. Assume you hire someone and grant them 10,000 options with monthly vesting of four years with a one year cliff. I’ve never really understood why the majority of stock option refresh grants are stacked grants mid-way through the granting process. One thing, however, has always baffled me. And, having thousands of data points over the past 17 years, I’ve got a good calibration on reasonable. If things are going well, I am supportive of anything that’s reasonable. While I’ve occasionally had conflict over compensation, and I’ve had a few CEOs I work with tell me they feel like it’s an uncomfortable discussion, my own perception of my behavior is that I’m a softy. I know compensation is an important part of the feedback / reward loop. I embrace this – my goal is to help these entrepreneurs and management teams win. For many management teams, especially in rapidly growing, or mature companies, it’s an important part of their existence as culturally we’ve oriented compensation, bonuses, and future compensation around an annual cycle. It’s the annual bonus, next year bonus plan, option grant refresh cycle. Every year in December and January I go through the same cycle for all the boards I’m on. ![]()
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