Why I Hate the Standard...

Why I hate the standard 4-year vesting model for stock & token compensation, and the alternative I prefer. A thread on memoryless compensation schemes... 🧵 (View Tweet)

The problem with 4-year vesting is that the employee is overpaid if the stock price goes up, and underpaid if the stock price goes down. If they're overpaid, you made a bad deal, and if they're underpaid they leave you for a competitor. (View Tweet)

The ideal payment scheme is "memoryless" in the sense that the employee's satisfaction with their comp going forward is the same regardless of what the stock price has done in the past. (View Tweet)

If your comp scheme isn't memoryless, your morale will fluctuate with your price, which is bad. This is often cited as a major reason why companies don't want to be publicly traded even though being publicly traded brings a company much more attention, usage, and investment. (View Tweet)

There's a problem though: If your compensation is pure cash then it's technically memoryless BUT you have nothing to align the employee with your company's mission. So what do you do? How can you increase alignment while maintaining memoryless compensation? (View Tweet)

What we do with my org is we make offers in pure cash, but then add the option to convert as much of each monthly payment as they want into DESO at a 10% discount to the market price BUT with a 2 year lockup. Conversions happen at each payment not in advance. (View Tweet)

Initially their DESO exposure will be zero. But as people take advantage of the option, their exposure will naturally increase without compromising memoryless-ness. At any given time, everyone is being paid the same in cash terms as when they started regardless of price. (View Tweet)

With this scheme, the price going down only impacts past payments AND it means future payments can get more coins, which missionary teammates will take heavy advantage of. Additionally, because each decision is up to the individual, there is more ownership over one's destiny (View Tweet)

If you're worried not enough people will take advantage of the conversion, you can just increase the discount. But selecting for missionary employees should be enough to result in significant voluntary exposure. (View Tweet)

Maybe if you're really cash-poor as a startup then the 4-year vesting model makes more sense. But if you have a reasonable amount of cash, it really feels like this will set you up optimally for long-term in terms of alignment and morale. (View Tweet)

At minimum it makes it so that you never have to reprice someone's options or deal with an exodus of top talent when there's a market downturn, which the 4-year vesting scheme is very sensitive to. (View Tweet)

Do you have an interesting compensation scheme for your project? I'd love to learn more about it! Very exciting to see people iterate and innovate on old assumptions in light of new technologies and business models :) (View Tweet)