It effectively gave the company a discount on employees who stayed only 364 days - or to look at it another way, a 'trial period' of 1 year where the pay was substantially less.
Am I the only one that doesn't see that as unreasonable? It's not like you aren't accruing equity during that time; you still get the full year's worth of options at the 365 day mark. And the ramp-up time with new engineers can be so long that the first year isn't nearly as productive as consecutive ones.
A buddy of mine who worked at a giant company (not strictly tech but you'd recognize it) said he heard from his boss that the company effectively considers the first year of a software engineer's employment a wash as far as cost/benefit. I can't imagine they're the only ones. In that case, why would you reward people who jump ship before your break-even point?
I think the larger the company the longer it takes to ramp up, but at a small startup you can have a big impact in month one.
I've always found the one year cliff funny, since investors don't have a cliff.
I've been hoping startups would start doing this for a while, and think DD is really a pioneer here and think this will become a trend. I know personally I turned down a few opportunities at promising startups simply because I was young, in my twenties, and a year felt like a long time. I found the probability of a life changing event that would require me to move and leave a company too high, and didn't want to bust my butt for 10 months with a salary cut, then have to leave and get no equity. So I said "no" to a few opportunities that otherwise would have been great.
Currently incentives first your first year are to focus on not getting fired. Now it can be on making an impact.
> I know personally I turned down a few opportunities at promising startups simply because I was young, in my twenties, and a year felt like a long time. I found the probability of a life changing event that would require me to move and leave a company too high, and didn't want to bust my butt for 10 months with a salary cut, then have to leave and get no equity. So I said "no" to a few opportunities that otherwise would have been great.
I'm curious: Did you try to negotiate? I have had luck negotiating the terms of equity in the past, but I'm not sure if my experience generalizes.
> Currently incentives first your first year are to focus on not getting fired. Now it can be on making an impact.
If someone is so unmotivated at a job that they're not making an impact, I don't know if removing the cliff would help; they likely shouldn't have taken the job in the first place. If you join a new place and realize that it's a poor fit, it's usually best to cut your losses and move elsewhere immediately, even if your equity hasn't vested. The presence of a cliff doesn't significantly change that math.
I agree about missing out on hires because of the cliff, I just don't think it's that unreasonable to have one.
Not back then. Was not bright enough. That would have been smart. I think if I had phrased it as "I'm very excited about your potential, but I'm young and black swan events may happen and I might have to leave early, how about a 6 month cliff?". Probably would have worked.
> If someone is so unmotivated at a job that they're not making an impact
I didn't phrase it well. What I'm getting at is that risk taking is disincentivized your first year. You might have an idea that could have an upside of 100, but might also lead to a loss of -10, and in year one it's best to sit on that idea because if it were to fail you'd take a big personal loss. I think you have misaligned incentives that first year where the number one goal is not to risk rocking the boat, and number two goal is impact.
> What I'm getting at is that risk taking is disincentivized your first year.
Ah yeah, that makes sense and I didn't think of it that way. I guess I personally don't look at it like that, but I can definitely see and appreciate the thought process.
I think we need to consider each company separately.
Smaller firms may have smaller codebase and less complex infrastructure and processes to get familiar with. Learning all of that wouldn’t take more than a week or a month, tops.
Larger, public companies like FAANGS will often have completely custom stacks, specialized developer tools and a ton of checks before anything you write hits production. Learning to navigate this will take a lot longer. IIRC Facebook has a bootcamp of several weeks (months?) just to get new engineers familiar with their shit.
In either case, I personally don’t think it’s a “wash” since even at the bigger company it’s not like you’re not doing anything and once you get familiar with the stack you can be productive af.
You're completely right—to be fair, the company I was referring to is giant and likely has several months' worth of things to learn, which is very different than joining a startup. But even if a one-year cliff seems excessive for most companies, I still don't think there's anything wrong with a cliff of some sort. Maybe 6 months makes more sense for a medium-sized company, but there's still a breakeven point for new hires, and unless you're one of the first 5 or so employees, that point is probably somewhere between 3 and 9 months. I don't think it's unreasonable for companies to want to pay less during that "trial" period; if you don't like it, join a different company, or just hold out until your equity vests.
You understand that other people aside from Eng. work in tech companies, yeah? Lots of folks in Ops. roles and other non-Eng. roles get really fucked over by these cliffs and don't take a year to ramp and be impactful in their roles.
But it's not like the one year cliff is a hidden detail that you don't find out until you join; employees have all the information up front. If you choose to take the job anyway, you know that your compensation will be lower if you leave within the first 365 days, so if you still choose to leave, that's on you.
A cliff forces one to consider decisions with a different time horizon and tends to avoid short-term thinking (e.g. attempt to tune financial results ahead of a certain quarterly report).
Sometimes, companies include in their annual reports the conditions of employee shareholding plans. In Europe, for management, plans with 1 year vesting and 1-3 years blocking period is a practice. This means that you cannot exercise the options until 2-4 years in. Further, all unexercised options are forfeited if the employee moves to the competition within a defined timeframe.
Having been fired once at the 10-month mark early in my career, not for misconduct and not after any prior performance warnings, the 1-year cliff can be heavily abused by employers. Your argument assumes the employee has the control over when they leave, which isn't always true.
(In actual fact I was then a pretty underperforming employee who misunderstood the situation, but the apparent trigger for me getting fired was my own request for help addressing the situation since I realized something was wrong. The startup founders were as early-career as me and didn't really know how to give me the feedback I needed. My next employer did give me the necessary constructive criticism, after which I made the necessary changes, got subsequent positive feedback from that same employer, and have been a decent to good employee everywhere I've been since then.)
Not only that, Door Dash might still have an effective 1 year cliff anyway.
Usually signing bonuses have a 1 year paypack period. So sure, you may get stock even if you leave before a year, but you still have to pay back the signon bonus you received (and you don't get the taxes you paid on the sign-on bonus back either)
It helps keep the cap table small. After more than 2000 shareholders the company must register with and report information to the SEC. This is both a costly and time-consuming process.
It effectively gave the company a discount on employees who stayed only 364 days - or to look at it another way, a 'trial period' of 1 year where the pay was substantially less.