Last week’s post about sharing company success by offering stock options covered a lot of the basic structural details around implementing an employee sock option plan, but one major point left unanswered is who gets what and how much? The most common way to discuss stock options is in terms of percent ownership, but many entrepreneurs (including myself) prefer to present stock options in dollar values with an expected outcome based on growth over a 4-5 year period.
Here are some common percentages of non-founder employee stock options:
- CEO/President ~ 5%
- C-Level (COO,CFO,CTO,etc) ~ 2% – 3%
- VP ~ 1% – 2%
- Director ~ .5%
- Manager / Senior Engineer ~ .2% – .25%
- Engineer / Consultant / Advisor ~ .05% – .15%
These are well known industry standard non-founder equity percentages, and it’s important to note that founder equity is an entirely different and more complex calculation based on a lot of parameters.
When discussing stock options with employees, I like to stay focused on the outcome of what these options could amount to using examples. For example (using easy numbers), if someone is granted 10,000 units with a strike price of $1/unit and the company grows at 60% year over year for 5 years, then those stock option are now easily worth $10/unit which is over $100k total. It’s much more exciting to think that 4-5 years of hard dedicated team work could pay off 10 fold for everyone, versus just telling each person individually that they have .1% ownership in the company.
What are some other key points when determining non-founder stock option equity grants?
Great post, Greg! I think it is also helpful to think about non-founder vesting as a tool to encourage organizational performance. Rather than allow an individual achievement to be the only requirement to realize the stock-based award’s value (i.e. service based vesting or individual sales based vesting), boards and compensation committees may want to consider event/performance based vesting that requires collaboration and leadership development at the group, division, or company level. Quarterly or annual meetings of plan participants to review the impact of their activities on stock value can reinforce the perceptions of individual value obtained through effective team work and organization-focused leadership.