This is a great post, and I agree with almost everything Sam wrote. I think problems #1 and #4 are unfair (you might get less than you deserve, or less than you thought you were getting), but problems #2 and #3 are extremely unfair (you can't take what you've earned with you if you leave the company, or you have to pay taxes on something that has no liquid value and might not have any value in the long run).
I'd love to get Sam's (or anyone else's) thoughts on the 10%/20%/30%/40% 4-year vesting schedule that was mentioned. I don't like this schedule for two reasons:
1) It creates larger discrepancies in what employees earn over time relative to each other. If employee #1 joins today and gets a 2% grant, and employee #20 joins in 2 years and gets a 0.2% grant, then in year 3 of the company, employee #1 will vest 30x as much as employee #20, instead of 10x with the current 25%/25%/25%/25% scheme.
2) This scheme seems to replace and/or ruin refresher grants. Currently, if you do a good job, you get refresher grants every year or two. With the 10/20/30/40 system, you're already getting higher and higher compensation over time, regardless of performance, and the bump from refresher grants while you are vesting your original grant becomes minor. Furthermore, the drop from what you vest in year 4 to what you'd vest from just refresher grants in year 5 becomes much more dramatic and much more likely to push someone to look for other work.
The back-weighted scheme is also problematic because sets up a perverse incentive to consider letting people go at the end of their second year unless they are all-stars, since the company ends up keeping 70% of that equity and gets 2 years of hard work out of the person. With an even weighted scheme there is no time-dependent tradeoff like this to be made, the employee continually earns shares at a fixed rate and as long as they are contributing managers never have a hard "decision point" to make with regards to their shares.
The problem with back weighted grants (and amazon is famous for this) is that the companies that do it are the ones who ride developers raw and are doing it to attempt to stanch horrific employee turnover. Well, I guess I'm generalizing from the example of amazon, but really, is that the company you want to keep?
My take on it as a startup employee is (1) no, (2) hell no, and (3) your company sucks and you are doing this to attempt to lock me in. Also, hell no.
I'd love to get Sam's (or anyone else's) thoughts on the 10%/20%/30%/40% 4-year vesting schedule that was mentioned. I don't like this schedule for two reasons:
1) It creates larger discrepancies in what employees earn over time relative to each other. If employee #1 joins today and gets a 2% grant, and employee #20 joins in 2 years and gets a 0.2% grant, then in year 3 of the company, employee #1 will vest 30x as much as employee #20, instead of 10x with the current 25%/25%/25%/25% scheme.
2) This scheme seems to replace and/or ruin refresher grants. Currently, if you do a good job, you get refresher grants every year or two. With the 10/20/30/40 system, you're already getting higher and higher compensation over time, regardless of performance, and the bump from refresher grants while you are vesting your original grant becomes minor. Furthermore, the drop from what you vest in year 4 to what you'd vest from just refresher grants in year 5 becomes much more dramatic and much more likely to push someone to look for other work.
What do others think?