Stock Options · Compensation

Stock Options for Established Start-Ups

Michael Hong CEO / Co-Founder of Digital Media Rights LLC

April 19th, 2015

We have 10 full-time employees at the moment. Have always paid people from day 1. Am considering providing options at this point to existing employees as well as future hires (in addition to salary). 

How much of a percentage is fair to give up set aside for present and future hires on an option plan?

Thanks.
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Kate Hiscox

April 19th, 2015

Hi Michael,

10-20% typically depending on your future plans. Do you have investors? If so, they'll weigh in here as will a great lawyer that gets where you're going.

Lane Campbell Lifelong Entrepreneur

April 19th, 2015

Buffer has published their comp plan publicly which is probably the best source online for figuring this out.  

https://docs.google.com/a/strapr.com/spreadsheet/ccc?key=0AgrWVeoG5divdE81a2wzcHYxV1pacWE1UjM3V0w0MUE&usp=drive_web#gid=1

https://open.bufferapp.com/introducing-open-salaries-at-buffer-including-our-transparent-formula-and-all-individual-salaries/

Heidi Hutchison Managing Director, Tau Consulting Group ❖ Outsourced Marketing Expertise ⇨ Driving Business Growth

April 23rd, 2015

I will be attending a conference in Atlanta from Wednesday, April 22 to Saturday, April 23. I will have limited access to emails. If this is urgent, please call me on my mobile or text me at (858) 245-7003. I will be back in the office on Monday, April 27. Cheers, Heidi

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

April 19th, 2015

20% is typically what I have seen...if they have an options pool..

Anonymous

April 20th, 2015

Hi Michael - an often overlooked question is what type of options you would grant. In the US this can make an enormous difference, and can be used as a sales tactic to get better talent with less options.

There are ISO (incentive stock options) and NQSO (non qualified stock options). With ISO the business has more to manage to stay compliant, but the upside is that when an employee executes they have no upfront tax liability, and can hold them for 12 months and pay long term capital gains tax (which could be 20% compared to 45%).

With NQSOs, they create a liability for withholding upfront, and pay tax as though it's their salary. 

If you create an options pool investigate whether you can offer ISOs - if you can, explain it in simple terms to employees and prospective candidates, and make sure they are comparing apples to apples. ISO says you are a company who is thinking about the future, and that includes your team.