5 ms·

This isn't as simple as "push for equity". There are plenty of companies where equity makes no sense (say, a private consulting company, or a company with no pl

by Woost 15y ago

This isn't as simple as "push for equity". There are plenty of companies where equity makes no sense (say, a private consulting company, or a company with no plans to sell a la 37signals) What other options are there? Guaranteed end of year bonuses? Commissions in the form of profit sharing?

veyron 15y ago
For private companies with no plans to sell, ideally it would be an arrangement where the engineer receives shares (in a C corp) or is written into the operating agreement as a partner (in an LLC or LP) but a profit sharing agreement would have the same effect. In major law firms, the associates aspire to become partners in the firm, which is analogous to my interpretation when saying "equity".
- wanorris 15y ago
  Actually, setting up software firms where the best developers can "make partner" would be quite an interesting approach. I'm not sure it would work, but if it did, it could be a perfect solution for keeping a great team together for the long haul.
  - hammerdr 15y ago
    See: Accenture. It's a consulting company not a product company; it may be significantly different when "making partner" at a product company. However, from what I've heard, each partner at Accenture essentially runs his or her own business within the larger scale of the organization. Success is directly tied to the success of the internal mini-businesses. It is, however, an example of a company where IT professionals can become equity stakeholders in a private firm. I imagine a product company would need to make the partners in charge of one product each (or maybe a couple of partners on one product) in order to avoid the "Too many cooks in the kitchen" problem.
    - mathattack 15y ago
      Though your premise is correct, Accenture is public, not private. They (like many others) wanted to expand beyond pure consulting, and the partners wanted to cash out. Accounting and law firms may be a better example, though even they aren't as entrepreneurial as you think. They have their own regulations and internal politics.
  - wallflower 15y ago
    Most traditional firms, to make partner, you have to be personally responsible for a large amount of business. At Andersen, at one point, I heard the number was $10M/yr of revenue. It would be harder to figure out how much revenue is generated by an individual contributor (even if they are a superb coder). Also, partnership usually involves leadership decisions
  - tptacek 15y ago
    The amount of politics and backbiting and sabotage that gets mixed in with partner-track programs is horrifying. Find an incentive scheme that empowers first-year hires to do amazing things for your company.
    - nostrademons 15y ago
      That's sorta the YCombinator model, isn't it? If you do really amazing things, you get acquired for a few hundred million. If you do somewhat amazing things, you get acqhired for a million or so. If you don't do anything, you get nothing. Seems to be largely working within the specific space of Silicon Valley YCombinator-funded startups, but I'm not sure how well it scales. There's a pretty sharp filter for getting into YC, and for someone without access to PG's connections, the chance of hitting it big or getting acqhired may not be worth the risk they take.
      - anothermachine 15y ago
        But YC invests in technically-competent businesspeople, not engineers
    - rayiner 15y ago
      As someone who left software engineering for law, I have to say that partnership is a great motivator. I don't want an incentive scheme to help make you money. Pay me 20-25% of the revenue I generate for the company and give me a non-zero chance to be a stakeholder and I'll work my ass of for you.
mvc 15y ago
Presumably, equity in these companies would be like being a "partner" in a law/accountancy firm.
- tomkarlo 15y ago
  I hope not. If you talk to folks in law, in particular, the partnership system is broken. It basically results in a situation where it's in the interest of the existing "partners" to have as many "non-partner" employees as possible, dangle the carrot of partnership in front of them so they work really hard, but in reality only promote 1% or so to partner. That maximizes the return to existing equity holders but it means life sucks for everyone junior.
  - rayiner 15y ago
    Yet the partner/director carrot in law/banking/consulting convinces tons of Harvard, Yale, etc, grads each year to work 80 hour weeks for their 20s for a shot at equity (which realistically is more like 5-10% at big NYC type places and upwards of 30% in secondary markets).
    - tomkarlo 15y ago
      This is really mostly a law thing - banks and consulting firms, by and large, aren't partnership models any more and haven't been in a long time. Any large bank or consultancy is public now, which means they give equity to employees out of a huge pool and it has relatively little effect on the comp of their managers. That's different from a law firm, where even in fairly large ones the addition of new equity partners can have a material impact on the existing partners' comp. As for making partner in a BigLaw firm, folks I've talked to describe it as "a longshot" to "nearly impossible." A firm like Skadden will hire 500+ new associates a year (worldwide) and name maybe 4-6 partners, not all of whom started as associates. Unlikely the chance of going from associate to partner breaks 1%. (Updated #s after asking someone who worked for Skadden.)
      - rayiner 15y ago
tptacek 15y ago
Private consulting companies have all sorts of var comp plans; the most common is profit sharing.
nikcub 15y ago
It is funny that options are now so associated with a company exiting that we totally forget that their original purpose was as an efficient mechanism for profit sharing
- tptacek 15y ago
  I was thinking exactly the same thing, about the parallels between speculative bets on appreciation and dividends.
dmoney 15y ago
I read in an interview that at the end of the year, 37signals takes most of its profits, and pays them as a dividend to its shareholders. I don't know if lay employees get a chance to own stock, but if they did it could be a great incentive.

by Woost 15y ago

veyron 15y ago

For private companies with no plans to sell, ideally it would be an arrangement where the engineer receives shares (in a C corp) or is written into the operating agreement as a partner (in an LLC or LP) but a profit sharing agreement would have the same effect. In major law firms, the associates aspire to become partners in the firm, which is analogous to my interpretation when saying "equity".

wanorris 15y ago
Actually, setting up software firms where the best developers can "make partner" would be quite an interesting approach. I'm not sure it would work, but if it did, it could be a perfect solution for keeping a great team together for the long haul.
- hammerdr 15y ago
  See: Accenture. It's a consulting company not a product company; it may be significantly different when "making partner" at a product company. However, from what I've heard, each partner at Accenture essentially runs his or her own business within the larger scale of the organization. Success is directly tied to the success of the internal mini-businesses. It is, however, an example of a company where IT professionals can become equity stakeholders in a private firm. I imagine a product company would need to make the partners in charge of one product each (or maybe a couple of partners on one product) in order to avoid the "Too many cooks in the kitchen" problem.
  - mathattack 15y ago
    Though your premise is correct, Accenture is public, not private. They (like many others) wanted to expand beyond pure consulting, and the partners wanted to cash out. Accounting and law firms may be a better example, though even they aren't as entrepreneurial as you think. They have their own regulations and internal politics.
- wallflower 15y ago
  Most traditional firms, to make partner, you have to be personally responsible for a large amount of business. At Andersen, at one point, I heard the number was $10M/yr of revenue. It would be harder to figure out how much revenue is generated by an individual contributor (even if they are a superb coder). Also, partnership usually involves leadership decisions
- tptacek 15y ago
  The amount of politics and backbiting and sabotage that gets mixed in with partner-track programs is horrifying. Find an incentive scheme that empowers first-year hires to do amazing things for your company.
  - nostrademons 15y ago
    That's sorta the YCombinator model, isn't it? If you do really amazing things, you get acquired for a few hundred million. If you do somewhat amazing things, you get acqhired for a million or so. If you don't do anything, you get nothing. Seems to be largely working within the specific space of Silicon Valley YCombinator-funded startups, but I'm not sure how well it scales. There's a pretty sharp filter for getting into YC, and for someone without access to PG's connections, the chance of hitting it big or getting acqhired may not be worth the risk they take.
    - anothermachine 15y ago
      But YC invests in technically-competent businesspeople, not engineers
  - rayiner 15y ago
    As someone who left software engineering for law, I have to say that partnership is a great motivator. I don't want an incentive scheme to help make you money. Pay me 20-25% of the revenue I generate for the company and give me a non-zero chance to be a stakeholder and I'll work my ass of for you.

mvc 15y ago

Presumably, equity in these companies would be like being a "partner" in a law/accountancy firm.

tomkarlo 15y ago
I hope not. If you talk to folks in law, in particular, the partnership system is broken. It basically results in a situation where it's in the interest of the existing "partners" to have as many "non-partner" employees as possible, dangle the carrot of partnership in front of them so they work really hard, but in reality only promote 1% or so to partner. That maximizes the return to existing equity holders but it means life sucks for everyone junior.
- rayiner 15y ago
  Yet the partner/director carrot in law/banking/consulting convinces tons of Harvard, Yale, etc, grads each year to work 80 hour weeks for their 20s for a shot at equity (which realistically is more like 5-10% at big NYC type places and upwards of 30% in secondary markets).
  - tomkarlo 15y ago
    This is really mostly a law thing - banks and consulting firms, by and large, aren't partnership models any more and haven't been in a long time. Any large bank or consultancy is public now, which means they give equity to employees out of a huge pool and it has relatively little effect on the comp of their managers. That's different from a law firm, where even in fairly large ones the addition of new equity partners can have a material impact on the existing partners' comp. As for making partner in a BigLaw firm, folks I've talked to describe it as "a longshot" to "nearly impossible." A firm like Skadden will hire 500+ new associates a year (worldwide) and name maybe 4-6 partners, not all of whom started as associates. Unlikely the chance of going from associate to partner breaks 1%. (Updated #s after asking someone who worked for Skadden.)
    - rayiner 15y ago

tptacek 15y ago

Private consulting companies have all sorts of var comp plans; the most common is profit sharing.

nikcub 15y ago

It is funny that options are now so associated with a company exiting that we totally forget that their original purpose was as an efficient mechanism for profit sharing

tptacek 15y ago
I was thinking exactly the same thing, about the parallels between speculative bets on appreciation and dividends.

dmoney 15y ago

I read in an interview that at the end of the year, 37signals takes most of its profits, and pays them as a dividend to its shareholders. I don't know if lay employees get a chance to own stock, but if they did it could be a great incentive.