employees, employee-compensation, salarySay a new startup (less than five employees) and a research lab get a grant for a collaboration of several months.
The research lab receives the entire grant and sends in exchange one researcher to work full-time with the company.
At the end of the collaboration, the researcher leaves.
He has done really great work. Is it common/recommended in such situation that he should get shares of the company, even though he is leaving?
Giving shares has the main purpose to keep a person in the team. They usually go together with vest and cliff agreements - for ex. to get his/her 1% share an employee has to stay in the company for ex. 1 year cliff + 1 year vesting. In this example, if the employee leaves before the 1 year (the cliff) - they lose the shares. After the first year, every month throughout the second (the vesting), 1/12 of that 1% shares is vested. In the end of the second year, the employee can leave the company with 1%.
Generally, shares give equal rights & obligations, no matter if you hold 9% or 90%. Thus, this has to be explicitly regulated in the shareholder agreement so that founders make the decisions and employees just take part of the exit. You don’t want every employee with 0.xyz % to have a say on every management decision. Thus, Employee Option Pools (EOP) are created.
In short, don’t give equity to people who leave - give equity to people you want to commit and stay.
Shares are normally given (when given as opposed to sold) as work performance incentives to motivate people to work better and in turn increase the overall value of the company.
Thus shareholders are normally agreeable to dilute their shares and offer them to an exceptional employee who would actually increase the value of the company further.
Giving shares to people who are not going to be working anymore (increasing the value of the shares) is against the interest of the shareholders, and thus, if I’m one of the shareholders I would say no because it doesn’t make business sense.
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