Ian Mobbs • 30 May 2019
I’ve been thinking a lot about equity lately. As America gets closer to full employment, workers are suddenly finding themself with the most power they’ve had in decades. With that, how can we distribute ownership of a company to the many, instead of the few? How can we cement worker power and ownership for decades to come? I propose an equity model I’ve been calling tenure-based ownership. The idea is basically this - your ownership in a company is proportional to the amount of time you’ve spent there, compared to everybody else. The formula to calculate this is pretty simple: just take
yourHoursWorkedAtCompany / totalHoursWorkedAtCompany (you can replace
hours with whatever unit you want). Here are some examples:
(4 quarters). You hire your first full-time employee after 1 year
(4 quarters). After their first 3 months
(1 quarter), you own 83%
(5 quarters / (5 quarters + 1 quarter))of the company, and the employee owns 16%
(1 quarter / (5 quarters + 1 quarter)).
(8 quarters)before deciding to hire a new employee. Each co-founder owns 33% of the company, as they’ve spent the same amount of time there
(8 quarters / (8 quarters + 8 quarters + 8 quarters)). A new employee joins and works for 1 year (4 quarters). Each co-founder now owns 30% of the company
(12 quarters / (12 quarters + 12 quarters + 12 quarters + 4 quarters))and the new employee owns 10%.
While there are clearly more complicated examples (typically the bigger the company, the more complicated the formula becomes), this actually follows some of the basic principles of traditional Silicon Valley equity pretty closely:
There’s also a lot that’s different about this plan. One of the biggest things is that it forces founders to really evaluate if you need to hire a new employee, as each new hire directly affects everyone’s equity. This is somewhat in line with some recent trends, where many new tech companies are attempting to grow like stable, small businesses rather than typical startups (that being said, this is required reading: Startup = Growth). It also dilutes the vested equity of those who leave the company faster than the traditional method, since your equity is directly tied to the total amount of time you’ve spent at the company. Some other notable differences include:
There are a ton of open questions with this equity model. Why scale ownership in a linear fashion? If non-founders don’t get voting rights, does this really help guarantee workers rights? If you end up converting to a standard equity model post-exit, what’s the point of this at all? I’m sure there are a ton of other open questions and issues with this plan, and I’d love to hear them! Here’s a very simple Google Sheet you can copy to calculate equity based on tenure. Feel free to reach out to me via email or on LinkedIn - let’s talk about it!