The Wealthfront Equity Plan (Stanford GSB, March 2016)

The Wealthfront Equity Plan (Stanford GSB, March 2016)
Wealthfront Equity Plan Playbook for Owners  March 8, 2016
How do you attract and retain the best employees?
CHALLENGING  WORK  ENVIRONMENT ENGAGING  CULTURE COMPELLING  EQUITY INCENTIVES 1 2 3
Equity incentives must both ATTRACT NEW EMPLOYEES RETAIN OUTSTANDING  EMPLOYEES AND
Plan approach must be rational and equitable
©2014 Wealthfront Inc. 6 Over the past 25 years…  • Our founder, Andy Rachleff, designed a plan that accomplishes both goals at an appropriate level of dilution • The plan has become known as  The Wealthfront Equity Plan • Simple, transparent & fair, it has now been adopted  in various forms by a number of companies at  varying stages.
©2014 Wealthfront Inc. 7 Example: Startup in Hypergrowth   • Company • Consumer internet • 50 employees • San Francisco Bay Area • Staffing Goal • Grow employee base to 100 by end of the year
A compelling equity compensation plan has four types of grants PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
Let’s first focus on new hires PROMOTIONS PERFORMANCE EVERGREENNEW HIRES
©2014 Wealthfront Inc. 10 New Hire Grants • List all functions & expected number of people to be hired • Next, determine the market rates to hire these individuals • Let’s look at some examples
©2014 Wealthfront Inc. 11 New Hire Scenario #1
©2014 Wealthfront Inc. 14 Example New Hire Budget Create an “equity budget” to calculate total dilution for new hires
Next, let’s focus on promotions PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92%
©2014 Wealthfront Inc. 16 Promotion Grants • Employees who have been promoted need to be at market rate for their new position • Two scenarios • The person being promoted has equity below today’s market rate • The person being promoted has equity above today’s market rate.
©2014 Wealthfront Inc. 17 Promotion Scenario: Employee has less equity
©2014 Wealthfront Inc. 18 Promotion Scenario: Employee has more equity
©2014 Wealthfront Inc. 19 Example Performance Budget
Now let’s focus on performance PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5%
©2014 Wealthfront Inc. 21 Performance Grants • Give additional equity to a limited number of people to reward performance (Top 10-20%) • Bump needs to feel large, but maintain equitable nature of the entire plan • 50% of equity grant for their current role, if hired today
©2014 Wealthfront Inc. 22 Performance Scenario
©2014 Wealthfront Inc. 23 Example Performance Budget
Finally, let’s focus on evergreen PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5% 0.125%
©2014 Wealthfront Inc. 25 Evergreen Grants • Goal is to retain employees for the long term • Avoid vesting cliffs so employees to avoid artificial anxiety points to stimulate interest in new opportunities
©2014 Wealthfront Inc. 26 Evergreen Scenario
©2014 Wealthfront Inc. 27 Evergreen Scenario • Start offering additional grants at 2.5 years. Predictable. • Give 1/4 of current market offer for their current role / title. • In this case, 0.018% per year  (0.07% ÷ 4) • Vests over 4 years • Grant every year avoids cliffs
©2014 Wealthfront Inc. 28 Evergreen Example Budget
Add up all grant dilution PROMOTIONS PERFORMANCE EVERGREENNEW HIRES 1.92% 0.5% 0.125% 1.4%+ + +
Total Dilution 3.945% (well within acceptable range of 3-5%)
©2014 Wealthfront Inc. 31 SOURCE Source Title

The Wealthfront Equity Plan (Stanford GSB, March 2016)

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