Equity · Legal

Acceleration clause in employee contracts - who should you give to and over what vesting period?

Peggy Yu Creator, explorer, storyteller

October 28th, 2014

How do you decide which employees get an acceleration clause? Only senior management - and if so, all senior management, or just key functions.  Also, assuming you then alter the vesting period and make it over a longer period of time vs. the typical 4 years.  How have others thought about structuring the acceleration clause in employees' contracts?

Tim Kilroy Analytics - LTV - Boosting Profits - Digital Marketing

October 28th, 2014

If you get acquired, most companies will look poorly on change of control triggers (so, if your VP of Sales is a rock-star, and they have single trigger acceleration, they have little incentive to stick around) the acquirer won't really like that.

You should do double triggers for all - change in control and your job disappears or changes a lot - then you accelerate. The vesting is a double edged sword. Wield it wisely.

Michael Rothrock

October 28th, 2014

Of the four startups I've been in, three offered accelerated vesting for everyone.  From my experience, this is the norm.

They all had the same structure: vest over 4 years, 1 year cliff, 50% vest on change in control.  Early employees (up to the first 100 or so) were allowed to do 83(b) elections.

Personally, I would follow this path.  You absolutely want everyone "swinging for the same fence".  If you have a top performing team, everyone will do well, even with company-wide acceleration.

Rob G

October 28th, 2014

Is this acceleration clause intended to address a Liquidity event? ...acquisition or public offering? If so I think everyone gets accelerated.  You want everyone pulling together  and swinging for the same fence. 

Peggy Yu Creator, explorer, storyteller

October 28th, 2014

Yes, the acceleration clause is intended to address a Change in Control event. While in spirit, yes, everyone should be swinging for the same fence - having everyone participate in acceleration makes it significantly less attractive to founders, board, investors. Some additional details I forgot to include. A typical vesting schedule is four year vesting with a one year cliff. However, if we assume that an acceleration clause is some more skin in the game for senior management, would it then make sense to extend the vesting period to 5 years vs. 4 years. If you get an acceleration clause, then you vest over 5 years vs. no acceleration clause at 4 years. Thoughts? Anyone done this before?

Rob G

October 28th, 2014

we are going through this right now so timely discussion.  I agreed with Michael and Tim - i think everyone should be accelerated, but don't burn all of your powder in one shot. assuming a M&A transaction  50% of remaining options vest upon completion of transaction leaving 50% for you and the acquirer (for example) to work into some sort of earn out provision.   obviously if you are somewhere in yr. 3 you have less leverage for your early mgt team and early employees.  What arrangements have you seen regarding  additional annual grants or additional grants triggered by COC events?