Paul Allen has an interesting post on vesting stock options based on milestones as opposed to by date. In early-stage ventures, I have seen a few forms of this type of compensation applied. In some cases, it can be implemented via vesting schedules, via controlling the grant itself, or combinations thereof (depending on the style of the stock option plan and infrastructure in place). The mechanics can involve varying levels of modifications to stock option agreement forms, employment agreement forms, letter agreements, job descriptions, board documents, etc.
Hard for me to make any generalizations, but I would say while in concept it seems very desirable, that in practice I have found it to be administratively burdensome if you take it too far or try to tailor it too much. I would probably make the same comment about non-stock option based (i.e., cash-based) project-level incentive structures as well. These can be hard to administer, keep fair, keep expectations in alignment, etc. especially if situations change during the course of a project or doing business. Maybe I’ve had good luck in that I’ve tended to work with intrinsically-motivated people though.
I have mixed feelings on this subject because one clearly wants to motivate people using whatever means possible. That said, to me the marginal benefits of having very tailored bonus compensation seems … well at times marginal and not remarkable.
Steve Shu
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