Equity Compensation is Like The Iditarod
I hope everyone reading this is well. These have been odd times, but hopefully, you have found new ways to use those frozen foods that you bought but never expected to eat. Speaking of frozen things, let’s talk about equity compensation and The Iditarod Trail Sled Dog Race. Believe or not there is more here than just another metaphor.
Like a well-designed equity compensation plan, The Iditarod is long and not for the faint of heart. It requires planning, training, commitment, and more than a little bit of luck. It also requires a team that trusts each other and works together. All of these things can also be said of a successful equity compensation program.
Competitors train year-round for the event. Many teams scout the trail in advance. The mushers and their canine teammates learn to communicate by shorthand. Every member of the team depends on every other. They each have a role and respect the roles played by others. Just planning to compete is a commitment, and only those in top condition start the race at all. Once the race has begun is where most of us start paying attention.
Equity compensation is also a long-term commitment. The companies and professionals who make the most of that commitment are at the top of their game. People often ask how to split up Founders Stock. My general advice is to start with an even split whenever possible. Founders tend to trade back and forth regarding who is the most important during any month or year. Without a clear and absolute “lead” founder, anything other than an equal split becomes messy…fast. But much of this is done before most people start paying attention.
Granting equity can confound many founders and investors. It can often seem like they are giving far more than the food required to feed the dogs and keep them happy and motivated to pull the sled. Many are surprised to learn that they, and not their employees, are the dogs. They lead the sled. The sled goes nowhere unless they pull. The lead dog must be strong and smart. They were bred for this.
Employees are oddly more like the person on the sled. This is where equity compensation is critically important. You see, a dog sled is not like Santa’s sled. The musher doesn’t just sit and go for a ride. They must be an active participant for the entire race.
Like the musher, they must provide food and feed the dogs. This may in the form of innovative products, incredible execution of plans, or staying hyper-aware of what is going on from their unique perspective. But, most importantly, equity is there for the times there are the hills. And there are always hills.
When a sled team climbs a hill, the musher is often off the sled running or even helping push the sled to the top. The teams that do this well have a lower chance of injuring or exhausting their dogs. When the path is flat or on a downslope the musher can ride and catch their breath.
Equity will always seem like it’s too much when the path is easy. The key is whether it can get your staff off the sled to help push during the hard climbs. If it does this, you have a chance, with a little luck, of accomplishing your goals. Without equity, you are likely to have a group of people sitting on the sled asking why it’s going so slow.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense and has three metaphors for every occasion. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.
