a16z Podcast - a16z Podcast: Beyond One Size Fits All for Startup Employee Options

Episode Date: July 1, 2016

Do we need a new pay system for the way startup employees are compensated? While many people agree that the current 90-day exercise practice — an outdated relic of when companies used to go public/get liquidity in a much shorter timeframe — is far from ideal, neither are some of the other solutions proposed so far. Because incentives matter, and behavior follows incentives. Which is fine as long as you know all the implications around what you’re incentivizing for and it aligns to what you want as a founder for your company and employees. So “let’s get it out from under the rug, let’s talk about it, and let’s design a system that works for whatever you want your company to be”, argue a16z partners Ben Horowitz and Scott Kupor in this episode of the a16z Podcast. The discussion goes beyond just the question of a 10-year exercise to other configurations — such as Snapchat’s model and Tesla’s model for timing options, as well as radical experiments like “progressive equity“. What are the tradeoffs of each approach? How does the type of company you’re building (a complex hardware or infrastructure-heavy startup for example) change things? How does the broader environment affect all these considerations (and might plans to create a new long-term stock exchange help)? Finally, is it fair to treat tenure as a proxy for the actual value a particular employee contributed to building the company? Or to optimize for earlier vs. later employees, particular if the earlier ones de-risked the company and later ones helped scale it? And what do different employees want — more options, more RSUs, cash, more ownership, more stability, more mobility? All this and more in this episode…

Hi, everyone. Welcome to the A6 and Z podcast. I'm Sonal and I'm here today with our co-founder Ben Horowitz and our managing partner, Scott Cooper. And we're here to talk about a controversial and important discussion around stock options for compensating employees and the nuances of timing, the vesting of them. Let me just give some more context. We recently wrote a post that talked about some of the problems with the current 90-day system. And I think what's great about this is it's generated a lot of healthy discussion. But let's first start off with where we agree in broad strokes. Well, I think, look, it's important to go back when you look at a system redesign to how did the original system come into place. And so it started in the 80s with a kind

of advent of stock options. And the original motivation for it was actually very smart in that when you're talking about software engineering, yes, you can build a product to do something, but how you build it matters even more than, you know, like what the actual functionality is at the end. And to get to a level where people are really invested in what they're building, it made sense to make the people building that software be owners on the company. And that was like a great innovation. And as part of that, the ownership agreements were written in a way that was compliant with the then accounting laws. And the then accounting laws basically said that if you gave an employee more than, you know, a very short window to exercise, you would potentially

create a very large accounting charge, which would make it impossible for the company to ever go public or be acquired or anything like that, and that you wouldn't be able to predict earnings and all kinds of other things from a technical accounting standpoint. That was just the way it was and nobody questioned it from its origin to the early 2000s. And then following the great stock option scandal of the early 2000s, in late 90s. What was that scandal, by the way? I don't know what you're talking about. Stock option pricing scandal. So basically, you know, people were saying that companies were picking non-random dates to price their stock options and, you know, a bunch of people went to jail and, you know, people got fined and all that kind of thing. So they changed the law. And the law, the new law, kind of made it okay to have a longer exercise period, but nobody changed the practice. Wait a minute. If you're rich and you have 90 days to exercise, that's fine because you can buy your stock options. But if you're not. not rich, then you can't. And so now we've created this class thing. That class thing always

existed. There was just no way to solve it until more recently. What do you mean by the class thing? So basically, if you have money, then you can pay to purchase your shares. And if you don't have money, then you can't afford to pay. And they expire after 90 days. So, you know, a lot of the employees or employees who, for whatever reason, didn't have enough cash, couldn't basically acquire their ownership position. Now, that acquisition of that ownership position has risk in that you're buying the stock at that price. And so if the company fails, you lose your money. So the option is actually more valuable. It's better to have 10 years to vest even if you're rich. Right, because you have the optionality to sort of exercise at the best possible time. Right, exactly.

So Adam DeAngelo solved that rich, poor dichotomy by introducing the 10-year vest. However, created a new set of issues, which Scott outlined in the blog post. The issues are, one, you've made compensation packages far more valuable in that a 10-year option is much more valuable than having to buy the stock in 90 days, no matter who you are. And then there's a couple of knock-on effects. One is that the stock in your company, in the old model, when somebody would leave would typically basically come back into the pool. And that just meant the overall dilution over a long period of time would be lower, which affects all owners and employees. And so employees who got, say, 0.1% of the company were actually get less of the company

in a 10-year exercise scheme than in a 90-day exercise scheme. So then that kind of goes to the question of, well, rather than making one fix now that we have the new accounting law, should we take a step back and say, well, the accounting law changed and we didn't reexamine it and the time to go public changed and we didn't reexamine it. And like we also live in a much different world than in the 80s, should we take a look at how you design an employee stock option program now? I think Adam did a great job introducing a new concept. And certainly lots of our companies implement the 10-year extension period. And, you know, we felt like there hadn't at least been a discussion of all the issues that this principle raised. And so that was really the motivation behind doing it. You know, at a high level, the biggest thing that's changed is we used to have, you know, four-year options with this 90-day, you know, option to exercise in a period where companies used to go public in four or six years on average. And so what would often happen is an employee's options would be fully vested. They might choose to leave the company at that point in time. but often they had an option for liquidity, meaning they could exercise the option within that 90 days,

and then they could turn around and immediately sell the stock because oftentimes the company was public at that point in time. And so there was already a liquid market. And what we have today is because the IPR timeframes have been so elongated now, not only is the stock a liquid, and therefore if you exercise in that 90-day window, you take risk, obviously, for the stock. But it also means that if you allow people to extend for this 10-year period, then you do have lots of, of stock that may dilute the ability of existing employees to be able to actually get incremental stock options, the ones who are still there working on behalf of the company. So it's really this change in the IPO timeframe, I think, that really causes a lot of the kind of dichotomy

that we've been trying to discuss here. Is it really a tension between early employees and late employees? Because on one hand, frankly, those early employees took on a hell of a lot more risk to take a chance on the company and actually de-risk and build something that later employees when to come to. So are we, in essence, pitting, you know, when we talk about this longer period, are we really pitting like early employees against later employees? Is that the red herring in the conversation or is that the crux of it? I think that's not correct in the following sense in that early employees also get more stock options than later employees. Generally, the way it works is that, you know, if you come in early, you get a bigger package. And, you know, depending on the

company, some companies do that in a way that turns out to be very fair. And other times they get it wrong. It's a kind of a complicated equation because you don't know what's going to happen along the way. The other thing on early versus late employees to remember is there's always been a imbalance or dichotomy in early or late employees. One, which Ben mentioned, of course, that certainly early employees, rightly so, get more stock because obviously, you know, they're taking on higher risk. The other thing that the early employees typically have available to them is what's called 83B, which allows them to essentially early exercise their options when the strike price is still very low, and therefore the cash out of pocket required to do so

is relatively minimal. And they also don't have a tax event at that point in time. So what often happens for early employees is they eliminate this 90-day exit window issue because they've already early exercised their stock at a point where the stock price was cheap enough that it was financially viable for most people to do so. So that issue has always existed. We've always had this early versus later employee issue, if nothing else in the form of kind of this 83B. I think the big thing is like, what are you designing the company around and why do people have ownership and who do you want to own the company, both as kind of the founder and then also from the employee's perspective, the employees who stay the entire time, the employees who stay for four years, the employees who

stay for one year. And I think you really have to take all that into consideration as you design the program. And we had a program designed with a set of accounting roles and as Scott that mentioned a kind of expectation of when it would pay out that are no longer valid. And so you kind of have to go back and look. And, you know, one of the things that we take for granted that's also in there is, okay, one-year cliff, four years vested equally. Is the fourth year more valuable? Is the third year more valuable?

These are, I think, important questions in that what you're really trying to do is you're really trying to get people to take ownership in the company and build the company in the right way. And as the person who founds the company, what do you think that means? Like, what is the tenure that you want for ownership? And, you know, we've seen people experiment with this model. Snapchat, I think, is doing a very interesting innovation by having most of the vesting occur later in the fourth year, as opposed to in the first year. And that's just a way of saying, look, if you're here, that fourth year is just more valuable to us. And I think, objectively, it is. But that's not reflected either in the current compensation scheme. The other one that I think

is also interesting is Tesla, which goes less to vesting, but more towards how you think about sizing option grants based on seniority and tenure of employees. And one of the things that Tesla does is instead of the typical practice, which is most people get a very significant grant, you know, the day they join the company. And then over time, they might get some refresher grants, but those refresher grants are often a fraction of what their initial grant was. Tesla kind of reverses that and says, hey, we don't really know that much about the employee day one when they come here. We'll know more over years one, two, three as they actually perform. And so what they often do is give a smaller package up front and actually give people who perform well more options later

in their tenure to recognize the fact that, you know, their contribution is much better known at that point in time. And therefore, it makes more sense to have, you know, an option package that reflects their actual contribution to the business. So it strikes me that there's a conflation between tenure and value that an employee contributes. So someone could contribute tremendous value to a company in year one or year four or in year 10. You just have there as a proxy, like they've been here for one year, four years, 10 years, whatever the period is. Is there a way to decouple the tenure from the actual value contributed? The kind of employee you attract, say in the first five years might be very different than the employee you attract in the last five years. I mean, there's so many different

factors that come into play as we talk about this. No matter what model you set up for, it seems like you have an adverse selection problem where you're either optimizing very much for the type of people who don't want mobility. Because frankly, if I were a startup employee after investing, I have earned that. Those are mine. Why wouldn't I want to be mobile? And wouldn't you want an employee like me who wants to be mobile and has the type of talent that can go anywhere? Well, I think that there's a few parts. So one, the knowledge is actually very valuable. If I write a complex software system and I walk out the door, there's some of that knowledge I will transfer, but a lot of that knowledge walks with me. One of the things that you're trying to value with tenure is knowledge, not actually kind of the

value of the work in a single point in time. You know, just one thing to probe more on this idea, the value for Silicon Valley, the whole thing that built the value, the non-compete, et cetera, is this mobility of employees. And so what if I contributed disproportionate value to a company in the first two years, and someone else who came along and stuck around for 10 years, did steady a good job, but did not even create nearly as much value as I did. So why can't we optimize for that? Yeah, so that's a great question. And I don't know it's a dirty little secret. The obvious big secret is that the system is actually much more unfair than you're giving it credit for. And it's unfair in the following sense

that your stock option package that you got before you put that two years in where you did 10x, what everybody else did, was set on work you did before you even got there. You're right. Like no one even knows that value. Yeah. So if I came from like some Canadian company that nobody ever heard of, and you came from Google, and you got 5X a stock option package walking in the door than I did. And yet you created more value. And I come in and create more value. I don't get paid for that like today, independent of mobility. That is a very difficult issue because it has to do with your market value. People do things to build their market value. And once they have it, they're not going to take the job for less than that. then they could, you know, take job, got a big package come in and not perform

or as somebody who, for whatever reason, has lower market value is going to, you know, get an unfair treatment. And that's really, you know, maybe there's a theory that reconciles that. I don't know what it is. I mean, because on the back end, trying to have a founder then make up for that, say, initial market value and then try to disproportionately, you know, say, hey, I'm going to give you some extra stock options or make an exception. That can also lead to favoritism and other issues.

Well, I think the big problem is you don't have infinite stock. So absolutely you can give a performance grant. But there's no company that I know of that allocates more money to performance grants than new higher grants. And so the new higher grant where you know the least about the employee is kind of where most of this happens. And like it's not, I don't think it's a mobility. It's not a statement of mobility or making somebody an indentured bond servant or anything like that. Yeah, that's a part that I resist. I don't want to be stuck in one place for like, 10 years. Yeah, like, you ought to design it so there's compelling compensation for those kinds of employees, particularly if those are the kinds of employees that you want, then you want and sent that. And it depends on position, too, right? You know, you might want somebody to come and do that in one kind of job. And then, but if they're like the architect of the core database infrastructure or

whatever, then, like, you know, maybe like a year is not long enough to do that job correctly. Maybe it's a four-year job. Maybe it's a three-year job. Whereas, like, there may be, like, you. a, you know, a very specific kind of thing that you can come in and get it done in six months. Compensation is complex. And I think you have to embrace the complexity rather than just rail against people who point out that it's complex. You're not arguing that someone who's vested should not get their options, obviously. Absolutely. You should be paid for the work that you're

doing. But there's a question for the company of, okay, how do you want to pay people? And maybe the right scheme, and I'm not proposing a scheme, but maybe the right scheme is to pay much more cash early and then make ownership a later binding thing. Because ownership is significant in other ways in that it has to do with the governance and the ability of the company to do everything from raise money to acquire companies to do all kinds of things over time. So what is the threshold for ownership. And I think it's one thing in a world with 90-day exercise and another thing in a world with 10-year exercise and not saying that that means you have to be on 90 days. It just says if you're going to be on 10 years, you've got to deal with that fact and not just sweep it under the

rug. Like let's get it out from under the rug. Let's talk about it and let's design a system that works for whatever you want your company to be. So whatever you're optimizing for basically as a founder? Well, yes. What do you want the incentive to own the company to be? Like, how much do people have to care about the actual company themselves? If we're just talking pure compensation, then I think cash is actually a better vehicle than stock, because one, like stock is variant. And you may not get paid, not because you can't invest, but because the thing goes to zero. And is that really your fault as an employee? Probably not. It's probably the CEO. It's probably a founder's fault. if the thing goes to zero, not your fault. So, like, why are you penalized on that? And so that kind of gets into, like, are we really doing the right thing by paying everybody with large upfront option packages,

or should we have more cash up front, more ownership back on loaded for the people who are like, well, forget mobility, whatever. This is my mission to build this thing. Should those be the people who are owning it? Okay, but as a startup, this is the one piece of leverage you have. You don't have a lot of cash in the early days. And the one thing you can do.

Not necessarily true. I mean, like, if you can sell your stock, then you can have cash. Okay. So then why not give people restricted stock units? Again, if you can't, you're giving them valueless stock potentially. Why not just give RSUs instead of options? Wouldn't that be sort of like a middle? You could do that, but it's just not as valuable, the honest answer, right? So an option has more value typically than an RSU, right? And early in the days, people want to optimize for that option value. So you could certainly do that. You're right. You could give people RSUs early on and that would kind of change the dynamic here. I think that would probably be a less attractive compensation measure for many employees relative to getting an equivalent number of

options because they're just not as highly valued in terms of how the mechanics actually work for an RSU. Right. When you're Google and your RSUs are equivalent to your stock price and your stock price is exceptionally high, then the RSUs become extremely valuable. But if you're a company that did around at $15 million pre and the RSUs are at the bottom of the preference stack, they're a lot less valuable. You have to give less, you know, just because the option equivalent, the options have much more upside because you get more of them. And so as an employee, I think most employees who join a company early and want ownership in that company would prefer options. RSUs are kind of closer to a cash instrument. They're kind of, you might think of them as a hybrid,

but it's certainly a mechanism or a tool in the toolbox. Again, I think, you know, what you want to go back for is say, okay, you know, who do I want to own the company? Who do I want to work here? What's fair compensation across the board for them? What does it mean to the people who stay with a company when a company leaves? You know, one other tricky thing about the 10-year option vest, like whether you want to stay or leave, whatever, like I'm not making a moral judgment on that. I'm just saying, do you want a financial incentive for people to leave? And if you have a 10-year exercise, there is potential an incentive for people to leave in the sense that I can walk out with my stock that I have and I can get a brand new offer from a new company, whereas if I stay, maybe I get a

promotion grant that's equivalent to a new offer of a new company, but that's a pretty rare thing. The flip side of that is then do you want someone who feels trapped as an employee who can't necessarily move as easily because they're essentially, for lack of a better phrase, handcuffed to the company for X amount of time. I guess the question I'm trying to get to is back to this idea of adverse selection. I think that's right, that if you have stock that you will get if you stay, but not get if you leave, then you have that issue as well, that you may be incentive to stay, even if you don't want to be there. You may have a financial incentive. Right. Then you've actually become less like dead equity. You become like a dead zombie just

hanging around the company, if you honest. No, absolutely. And look, we've seen that. behavior for sure. Yeah, no matter how you slice it, incentives do matter, right? And so that's, there's no question that if you incent people, whichever way you go to incent people, the behavior will follow. Certainly, you know, now with the 10-year option, I think you do create an incentive and that may be fine. That may be the incentive that you're okay with is, hey, if somebody's here for four years and they want to be mobile after that, that's okay. But I think you just have to recognize that you are creating that incentive. And, you know, you have to be willing, obviously to understand the implications of that incentive you've created. Right. And it may be something

as simple as, okay, dang, I don't want to incent people to leave after four years, but after six years, I'd be fine with that. And then, like, you probably need to set your vesting schedule that way. And these are just the issues that now become issues that weren't issues before we make this change. Just to sum up then so far, so it's very clear that we all agree that the 90-day vesting schedule is broken. We also all agree that we want to be everyone, the founder, investors, the people building the company, everybody is pro-employee. I mean, the employees are the heart and blood of the business. They're the ones who create the value in the end. So where I think the disagreements are really playing out as in the nuances of how to approach the solution. And it

sounds like we don't actually have a specific solution in mind. What we're really saying is it really depends on what you're optimizing for as a founder. So what are some of the broader principles and mindsets that we should then bring to this discussion if you are a founder trying to figure out the right way to go about this. Different companies are different. And so you have to start with, okay, what do I want? And then what does what I do incent everybody who's applying for a job, everybody who has a job? And then, you know, whether or not they should leave that job. And then who do I want to own the company at the end of the day? I mean, I don't know what the best answer is. And it's different, you know, depending on, you know, your ability

to raise cash and other things as well. So, you know, it really probably needs to not be one size fits all. I think that if every company had a different scheme, you do get into a weird thing for potential employees in recruiting. So I think we might do a disservice to the industry by doing that. But there might need to be, say, four or five standard flavors, depending on, you know, how you think about your company, what kinds of employees you have. And we already do have very big differences in that if you're a consumer internet company like WhatsApp, that's going to be very different than if you're like a very complex hardware company like Tesla. Like your ownership in Tesla as an employee is just going to be a different thing than it is

going to be in WhatsApp. We actually call it the WhatsApp effect here that you can actually build that scale of a business with like 10 engineers. Yeah. For that business, you can, but you can't build Tesla with 10 engineers. And so these things matter as well. So Tesla's option plan cannot be the same as WhatsApp. or it probably should not be.

The other principle to think about and people may differ on how they decide to implement it is as best as you can. I think you do want to match kind of the timing of how you think about people investing their equity to as much as you can when liquidity happens in companies. And again, remember, if you go back to where we started, it may just be now. We might need to think about ownership and investing periods differently because you want to tie as much as you can the contribution, the employee to the overall creation of the actual equity value for the business.

And so maybe an answer is to think about, gee, people should get more options, you know, even more options they do today, but with the understanding that they invest over a longer period such that it ties more closely to when you think a liquidity happens. And then you don't have this issue of people leaving or not in terms of whether you need to change the actual exercise period, because, you know, you're trying to more formally match, again, vesting with when there actually is a liquid market into which people could actually invest and exercise and sell their shares. So the overall theme is there are plenty of different solutions that founders can have. And yes, there are certain issues, if not everyone, standardizes because while you can each experiment, there becomes a sort of arbitrage between companies around their compensation and options package. But at the end of the day, the real theme is to take a systemic approach to the problem and think about all the factors from not just a single employee, not just a founder, the large company you're building, the ecosystem you're living in, and not just have like a simple solution without thinking through all the possible repercussions. And that seems to be like the broader theme. And, you know, we actually, in our own portfolio, have a huge variety of how different people handle this. They have the freedom to do whatever they wish.

Why is rhetoric of this conversation being investor and employee in the first place? It's really a question of, you know, as Ben said, as a founder, what are the incentives you want? The only role that venture capitalists play in this, of course, is venture capitalists sit on boards of companies. And, you know, they help the CEO kind of think about and manage option pools. But whether this happens or not is going to be driven by CEOs of companies, not venture capitalists. And there's nothing that the venture capitalists stand to gain in this context, other than, you know, what Ben said, which is can we all think about what is the optimal structure to actually help create, you know, bigger and more valuable companies over time? And in that case, you know, I certainly think the venture capitalists are 100% aligned with the founders in that respect. Look, I have been an employee at a startup.

I've lost options over the 90-day exercise window that I can afford, you know, like, you know, really can afford. I got, you know, three kids and 26 years old and all that kind of thing. So I understand the issue on that end as well. But I think what we're really talking about here is how do you build a great company? And like none of these options are worth anything if the company fails. And so, you know, the design of the option plan to make the company successful is every bit as important to the employees as it is for the employees to actually get their fair pay for their fair work. so you can't divorce those two topics. The other important idea we haven't talked about,

and if Shannon were in this room with us, our head of the people and practices group, but she's on maternity leave, I think the thing that she would say, and this is the most important thread that I've seen come up in posts like Adam D'Angelo's and other conversations, is communicating in a very transparent way

to employees early on, what they're getting into so that they know exactly what the tradeoffs are depending on the model. Yeah, I think that was probably the biggest sin of the 90-day exercise era is that a tiny number of employees actually understood that that was a case. I know I didn't understand when I was an employee. You know, it is in your agreement, but like half of the language in a stock option agreement, if you're a young

kid who wasn't trained in this kind of thing, you know, like what is an exercise period? I thought that was like some kind of like aerobics or something. Yeah. I mean, in fact, you actually, a lot of people, Shannon often says, they have this myth that you work at a startup. You're going to become like a millionaire. And that's actually not always the case. Yeah, it's not, it's not often the case. I think that's a big thing like educating people on what their compensation package means. And, you know, like if you actually did that and if it was actually transparent, then you might learn something as well about what an employee would really prefer. And, you know, maybe it is longer exercise times and many more stock options or maybe it's more cash or maybe it's, you know,

who knows. It's a two-way learning because the employee is also learning, if the whole point of this conversation is that as a founder, you're incentivizing for what you're valuing, then that employee hears that in that conversation as well, in that discussion of that plan. Oh, absolutely. And I think, you know, look, a lot of it is, you know, personal situations have a lot to do with how you think about compensation, whether you're committed to the long-term success of the company and that is your mission or not. If you've got one loving situation. And I've hired people who are rich who have no commitment to the company who want all their compensation in stock. And then I've hired people who are totally committed who need cash to be a bigger component. And so I think it's important to recognize that. Like not everything is in the payment instrument. One of the most valuable points that Adam D'Angelo makes is that every company should have the choice to set up their own plan.

And you, you're all saying the same thing. Like, it should be something that you think through as a founder. You shouldn't be sticking to a standard that's a relic of old time. But I do wonder, Ben, what would you do differently if you were the CEO of a company today? If I was doing it now, and this is for a company that I would run, so this is not necessarily what anybody should do for their company or anybody needs to do for a company that we invest in, and I want to make that clear. The things that I would likely do differently given what's changed is one, I think I would give bigger stock. option packages. I think I would correspondingly have the length of the vesting period be longer. I would have it be more back-end-loaded. What do you mean by back-end-loaded?

Back-end-loaded, meaning similar to Snapchat, so maybe rather than vesting in a four-year context, 25, 25, 25, 25, 25, you know, it might be a five-year context that was more like 10, 10, 10, 20, 50, or something, you know, I haven't designed it or anything. And then I think that, you know, once you do that, I think a 10-year exercise probably works or some kind of cash equivalent payout so that people do get paid if they best their stock. And then I would absolutely train all managers how to explain this correctly to employees when they came in, yes, because I think that's a very, very big deal. And I think, look, my back. on loading it, you can give larger stock. I want to say I'm not giving larger stock option packages because I'm the most generous person in the world. That's not really how it works. The way it works is you are like everything that you give out dilutes everybody else who's there. So like there's no free lunch in that sense. What I'm saying is because the vesting is back unloaded and the stock is going to go disproportionately to the people who stay longer that I can then afford to give

out bigger packages because of the people who leave after a year are not going to walk away with that much stock. They're going to walk away with 10% of what they got. Okay. So one of the two really important themes that came up for me in the nuances of this conversation that I think are lost in the current dialogue. Are this notion of one, and actually, you know, the CEO of Quora, I forgot to actually say who he was. Adam DiAngelo has written about this in the past. And Ben, you actually called out his work in a class you taught at Stanford. And Sam Altman's had to do a startup class about two years ago, which I'll link to this in the blurb for this podcast if people want to chase down all these links. But I think the broader question is experimentation, that it's

time to now experiment with new models. Because it's very clear we don't have, as you're saying, depending on what you're optimizing for, one clear standard model. So one of the experiments is a 10-year vest. Another interesting experiment is Andrew Mason's idea around progressive equity, which we actually talked about with him on the podcast. Probably the most radical, which, you know, again, has nothing to do with investors. But in Andrew's model, he basically puts a kind of cap on what the CEO, the founders, and executives can make, you know, and it's a dollar cap. And once they hit their dollar cap, which is whatever their kind of financial independence threshold is, and I think it was $50 million or something like that at his company, then all the rest of their ownership kind of

goes into an employee pool. And so it helps to a little bit spread the way. wealth. But the idea is just more like, you know, what does it mean to whom and what's fair? And I think these are really complicated equations in general. But I thought that was, you know, certainly an interesting innovation. You know, one of our CEOs has been talking about, you know, do what employees rather just have one thing they don't get, which is like liquidation preference. Would they rather have the liquidation preference value than the option value, which is essentially the same as saying, like, would they just rather be compensated in cash? And, like, I think, you know, there's definitely in place that would prefer that, and there's in place that would prefer not to have that.

And I think all these things, another thing that affects it is just, like, how expensive things are in Silicon Valley these days. So, like, rent has gone up, is doubled in San Francisco in the last four years. Okay, that changes your attitude about how you want to be compensated. So, you know, we've not taken that into account either. Another interesting thing to think about is what Eric Reese has been talking about, which is this concept of a long-term stock exchange. and the reason it's relevant in this context is one of the things that Eric does talk about is aligning kind of incentives between investors and, you know, managers of the company. And, you know, one of the things that, one of the ways that he proposes to do that is to have longer vesting periods to have compensation programs that are much more tied towards long-term goals for the company, as opposed to things today that are tied to relatively short-term goals like what quarterly results look like. And in return, obviously, he's expecting investors also to kind of take a longer-term view towards managing the company. But it goes to the broader point we talked to. about earlier, which is if you want to build a big company, one of the things to think about is how

do you align compensation such that, you know, you're ultimately trying to incent building a big company over a long period of time. All right, you guys, really interesting discussion. It's the beginning of many conversations because I think we are aiming to start, not end the conversation with the definitive solution. Thank you for joining the A6 and Z podcast. Thank you. Thank you.