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Comment by nostrademons | Hacker News Reader

Curious if there's been any attention given to Progressive Equity, the stock plan that Andrew Mason introduced for Detour almost a year ago:

http://blog.detour.com/introducing-progressive-equity/

https://news.ycombinator.com/item?id=9336392

It seems like a good way to fix problems of early employees being under-incentivized to take on startup-level risk, and to stay with the company once later high-level employees have been hired above them. Have any YC companies tried it out? Any plans to incorporate this into Clerky documents?

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We're always excited to see this stuff evolve - a lot of the popular practices were established decades ago and haven't changed much since then.

I can't say that we've come across companies (YC or otherwise) asking for this specific plan though, unfortunately. In general, we try to keep the default forms on Clerky tied to what we're seeing in the market - so if we see more companies moving toward this, we'd definitely update things accordingly.

Seems like a solid plan to address issues with disparity in compensation / upside between different tiers of employees. It spreads the reward but still allows the founders to maintain larger ownership chunks, which is the important part. Since equity is such a critical part of compensation [1], I’d love to see this implemented more, but I have a feeling it will mostly get lip service with people hiding behind “this is the standard.” Founders shouldn’t accept the “it’s standard” argument from VCs when negotiating terms, and employees shouldn’t accept the same argument from founders. You can’t have your circular logic and eat it too. Standards change and just because something is a standard doesn’t justify it’s existence. Slavery was pretty standard for awhile and I’m glad we got rid of that one.

[1] https://medium.com/the-wtf-economy/in-his-essay-on-income-in...

How difficult would it be for a startup to create two stock classes, where one has outsized voting rights? Then the monetary value could be spread more evenly to non-founders (i.e., not a 50-to-1 ratio between founders and employee #1), while the founder and investors maintain voting power.

I believe it’s very possible, just not standard. A number of companies have adopted such measures to great effect for the founders to maintain power over investors [1], but not many have used similar legal tools in reverse to help spread the upside with earlier employees as suggested in the first comment. Perhaps the standard should be for founders to get ‘super-voting’ shares and use some of the power to distribute better upside distribution. Sell it in both directions, longer term stability and more employee alignment.

[1] http://www.businessinsider.com/googles-co-founders-are-going...

I liked the progressive equity plan a lot. I'm not sure it really solves the problem unless you take it further than Detour does, but it says a lot to say "Once people get filthy rich, they won't get filthier unless others get brought along for the ride too."

What changes would you make to Detour's plan?

In a theoretical world, I would make the tax progressively larger after "financial independence" has been reached - either via step functions (every 1x over financial independence, 50% of the remainder is taxed) or some kind of parabola.

This may be too hard to explain clearly (even progressive commission plans are hard to understand!) so perhaps I would just settle for a higher tax rate.

My thought is if the founders want to make multi-millionaires out of the later engineers, a 50% tax will only do this in the extreme (10+ billion exit) cases. And in those cases, the founders will be billionaires themselves.

I'm assuming that Financial Independence is a large number (somewhere between 10 and 50 million) and that afterwards, the founders are in it "to build something great" rather than to keep score. Otherwise, you wouldn't consider the plan.

This isn't meant to diminish Detour. It's kind of like making fun of the first company to give equity just because equity can go down in value - I'm just making suggestions on a groundbreaking idea.

Thanks for taking the time to answer! One of my goals in life is to create a successful small business where all employees have meaningful ownership, and a genuine say in how the business is run. A lot of that is about getting incentives right, preferably at the start. So I appreciate hearing your thoughts.

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