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The Startup Employee Bill of Rights

EmployeeStartup Compensation

Jackson Alberts   July 10, 2014

Employee rights include a minimum wage, mandatory breaks, and occupational safety. But do they include standardized equity compensation? Some startup industry heavyweights think so and have launched a growing movement among employees to demand a new kind of employer concession: a “Startup Employee Equity Bill of Rights.”

On March 14, 2014, Chris Zaharias and Mary Russell, Stock Option Counsel, hosted a “pep rally” (from which founders and VCs were excluded) to draft a preliminary list of those rights. Before you consider contributing to the Linux Engineer’s Strike Defense Fund it is worth putting things into context. In Zaharias’ own words, “Stocks are the only way engineers can get rich and retire. Remember that. To live here in Palo Alto, you need about $1million dollars in equity gains.” Towards that end, the panel wrote a proposal to standardize equity rights. Here are the Bill of Rights, as currently drafted by Mary and Chris, as of this writing:

Right to Know.

Company information on capitalization and valuation, being necessary to the employee’s negotiation of a fair compensation package, shall be available to the employee with his or her equity offer and after each dilution and valuation event.
Right to Value.
The right of the employee to earn the full value of his or her grant shall not be limited by unreasonable vesting terms.
Right to Keep Vested Shares.
The right of the employee to hold vested equity up to an acquisition or public offering shall not be violated, and no forfeiture, repurchase or other provisions shall allow the company to seize vested equity of current or former employees.
Right to Tax Benefits.
The employee shall enjoy the right to all tax benefits, and shall not be subjected to tax penalties due to company negligence, at grant, vesting, settlement, company acquisition or sale of stock.
Right to Ask.
The right to evaluate equity shall not be violated by company limits on access to information or legal counsel.

EquityZen strives towards harmony between companies and their employees regarding equity compensation packages. Indeed, we feel that is the very purpose of equity compensation: to align the interests of startups with their employees.

Prospective new hires need to be able to effectively compare job offers. Given that many startup employees take a large salary hit in favor of equity, it is vital they know exactly how much equity they are getting (as a percentage of ownership) and how much it’s worth, and what the attached rights are (check out our post on Understanding Equity Compensation, which includes important questions to ask when negotiating your compensation). However, compensation packages are currently far from transparent. Even in the best situation with a very clear set of rights and a very clean cap table, figuring out what options will be worth when they vest is a complicated, though certainly doable, procedure. (For an excellent look at the math, please see our blog post “If I Joined Uber After College”). When clauses such as repurchase rights (i.e. the right to reclaim vested shares) show up on page 30 of a dense 80 page new hire handbook, employees even at the most successful companies may find themselves left out of the IPO at the end of the rainbow.

It’s important that employees and companies alike pay attention to developments such as the movement for a Startup Employee Equity Bill of Rights and the liquidity needs of shareholders as the time to IPO lengthens. Companies need to keep a pulse on the pain points of their employees, as keeping them happy and motivated is key to productivity. Startup equity and liquidity issues are solvable ones, and that’s core to our mission.  Helping employees understand how their equity works and what they’re entitled to is a step in the right direction. We believe the end goal is a harmonious balance between employees and management, where employees can enjoy transparency in their compensation and can share in the value they are creating through controlled liquidity along the way.