The worst thing you can do is hide information from your team. Being open and transparent is the better option, and the end result is a happier and more effective team. But whether in business or life, when you find yourself hesitant to share the truth, take a hard look at what you are doing and why.
The goal of this post is to bring more transparency to stock option grants.
There are two basic components to determine the number of options to grant: the targeted dollar value of the option grant and the value per option
- To determine the target value, there is a multiplier applied to the salary for every role/level in the company
- Skillshare uses a slightly modified version of the methodology laid out by Fred Wilson and Union Square Ventures
- For Companies and Managers: Communicating option value to new hires
- When they get to the offer stage, they send candidates a slide deck walking them through the offer in plain language
- The option grant is broken out in detail and the estimated value of that grant
Second tab: swap out “notional value of option” for “value of an option based on Black-Scholes”
Inputs: strike price, current strike price & estimated market value per share
For most early-stage companies, the simpler version is still the best model
But this update gives you a structure you can leverage through IPO and beyond
For Companies and Managers:
There are 3 ways to get additional stock options
- Biannual refresh
- Merit grants
- Promotions
- When you get promoted, we run your comp and level through the options calculator for that role. We then grant you stock options to get you to the same level as a new hire in that same position
New inputs for this calculator
Time to maturity – the longer the duration of an option, the more valuable it will be
- Annual risk-free rate – used the 7-year treasury rate and annualized volatility
- 70% feels like a reasonable plug for most growth companies
