On Equity

Henry Ward’s post:

Work @ Carta, get liquidity

Has been on my mental back-burner for a few months now.

I’m not sure that I’m fully bought into Ward’s prediction that the market will tip towards liquidity being the norm at some point in the near future, but it did make me reflect on the problem-solution fit that is equity grants.

At the core of the decision to grant employees equity, is a noble intent to give employees an upside in the future of success of the company. If the company does well — your equity stake appreciates in value. If the company doesn’t do well — your equity stake depreciates in value, all the way to the point where it may be worth nothing. I’m a strong proponent of this noble intent.

But equity also seems like an unnecessarily complex solution to accomplish said intent. Part of it has to do with the financial vehicle itself (Incentive Stock Options, or ISOs, for the purposes of this thread), and part of it has to do with the particular way that it’s being granted, which implicitly makes some assumptions on the lifecycle of the typical company which no longer seems to hold true.

Here’s a partial list of some odd “externalities” of using equity:

  • An arbitrary period of time during which equity is granted (“4-year vest”)
  • An arbitrary eligibility period (“1-year cliff”)
  • Complex tax treatment — taxes are often due before the upside can be realized
  • Cashflow constraints — options must be “exercised”, which requires a cash outflow, often times before a cash inflow is possible
  • Challenging handling of employee departure/termination (“exercise window” which further amplifies the cashflow constraint)
  • Irrelevant rights — being a shareholder grants shareholder rights that go beyond the cash value of the shares and are irrelevant to the intent stated above
  • Questionable “company success” proxy — a company’s market value is also impacted by many external factors that have little to do with the actual success or even financial health of the company
  • Limited liquidity — the ability to materialize any of the financial upside often depends on the company stock trading in a public market. An event that seems to happen later in a company’s lifecycle compared to when it used to take place, and has its own overhead and undesirable “externalities”

Maybe equity is simply the “best worst” solution. And maybe it’s time for a better solution?

On Equity

40 Days a Year

It’s been a while since I covered anything related to Paid-Time-Off (PTO) in this blog. More than 4 years to be a bit more precise. Mostly because the PTO debate has somewhat stagnated.

As evidence suggesting that “unlimited PTO” policies result in employees not taking enough time off started mounting, most companies simply defaulted to the tried and true old PTO allowances regime.

An interesting challenge with that approach is how to set fair PTO allowances across countries, where each country has its own mandated amount of national holidays.

This is another case of navigating a fairness polarity, similar to the one I covered here with regards to compensation. One pole pushes us to set policies that are fair across our employee base, “internal fairness” if you will. While another pole pushes us to set policies that are fair compared to the local market, “external fairness” if you will.

Most companies tend to go with a solution closer to the “external fairness” pole, setting a PTO policy that consists of the national holidays mandated by that country (or is considered to be the industry’s norm) + an additional PTO allowance based on industry norm in that country.

Doist, a 60-person company with employees in 26 countries, decided to go a different route, with a solution closer to the “internal fairness” pole:

A vacation policy built for a new age: 40 days off to use as you choose

The gist is very simple: every employee, regardless of country of residence gets a total of 40 days PTO a year. That allowance includes national holidays, so if an employee plans to not work during a national holiday in her country (a practice that is heavily encouraged) she needs to take a PTO day for it. This ensures, that whatever the number of days off a year the company deemed to be the healthy amount, all employees are able to take it.

One org design element that works for Doist’s advantage in this case and will likely create a challenging wrinkle in implementing this policy in other companies, is that Doist does not have any offices. This means that its staff can work whenever they please. They are not dependent on an office team that needs to operate the office while they’re there, or a building that needs to be open. However, while this is certainly a challenging hurdle, it does not seem to be an insurmountable one with some modest policy tweaks.

40 Days a Year

The Digital Productivity Pyramid [Forte]

Source: Praxis

I’ve been keeping tabs on Tiago Forte’s work over the years. I believe he’s one of the deeper thinkers in the field of personal knowledge management and productivity, and it’s been interesting to see his thinking evolving over the years.

More recently, he published:

The Digital Productivity Pyramid

An effort to organize much of his thinking into a coherent framework.

4 core principles underly the pyramid:

  1. Learning is non-linear: but more of a spiral staircase. Each level reflects a more advanced level of mastery of the same core skills.
  2. Each level is a combination of skills + technologies: the latter augment and extend the former.
  3. Each level emerges from the one below it, extending or abstracting the same principles.
  4. Information flow is captured in the order of the blocks in each level, flowing from left to right.

The pyramid consists of 5 levels:

  • Level 1: Digital fluency
  • Level 2: Task management and workflow
  • Level 3: Habit formation and behavior change
  • Level 4: Personal knowledge management
  • Level 5: Just-in-time project management

In the original post, each level is decomposed into its finer building blocks and linked to articles that more fully elaborate them.

Certainly worth checking out.

The Digital Productivity Pyramid [Forte]