Companies like Coinbase, Lyft and Stripe are turning over a new leaf when it comes to how they handle equity grants and vesting schedules: Instead of the standard four-year vesting equity grant for new hires, these companies are now offering one-year equity grants. What does this mean for employees and employers?
A four-year vesting schedule is no longer the right fit as flexibility becomes the norm
Tech companies and their employees today are in an environment of extreme uncertainty.
- In response to this uncertainty and a hyper-competitive market for talent, we’re now seeing a plethora of companies doing a one-year equity vest, instead of a four- year new hire grant with refreshes every year.
What are the pros and cons for employers?
One-year vesting gives employers the flexibility to reduce their equity dilution.
- Employers can evaluate talent year-to-year, and offer more shares based on performance without being locked into a four-year grant amount.
- One possible downside for employers is that one-year grants can sometimes cause confusion or unintended consequences during negotiations.
What are the pros and cons for employees?
Upsides: Employees are no longer locked in for four years at the company before they can get their full equity compensation
- Less potential for exponential growth in the value of shares
- One-year grants can make it easier for people who are not great interviewers or savvy negotiators to prove themselves on the job and get paid for performance
- Downside: Less chance for growth in share price
