When setting up employee incentive schemes, such as a series of share option grants to key employees, vesting conditions are an important component. Vesting schedules basically express how the employee can earn more or more equity as employment continues and, in some cases, performance milestones are met.
In this blog post, I will talk about what challenges vesting conditions can pose, and how administering equity on Capdesk alleviates those.
It can be a headache to administer a set of dissimilar schedules; even if it is a small set. It can also be hard to maintain a proper overview of the state of affairs in the company: How much authorised option pool is still available for new grants? How much of the option pool is outstanding, and of this - how much has already vested? When new grants are created, how much is left in the pool, and how is the vesting outlook now? Such information sometimes need to be inferred by scrutinising old board resolutions and articles documents. Also, in case an employee leaves the company, that employee's vesting schedule usually also need to be adjusted to reflect that vesting stops, and the changes communicated in an understandable manner to the employee.
On Capdesk, any one with the right authorisations can read off key option pool figures directly on the Equity Pool page:
(By the way, the small percentages you see in the picture signify the percentage of the fully diluted cap table. Handy.)
If one needs an overview of how vesting develops over time, the Vesting Overview report provides a summary of how key figures look and evolve over time. For instance, one can see how much is actually vested (cumulatively), broken down by month:
The report aggregates over all grants. In the above chart, we can see an employee vested 600 options in 2017-04, but then these options were cancelled the subsequent month, leading to a drop in the overall Vested figure. If you prefer to track other key figures, such as Vested and Outstanding (meaning, vested and not yet exercised), that's also perfectly possible.
Let's now move from the overall level to illustrating how to handle the individual grant.
We are going to see just how transparent vesting schedules on Capdesk behave. For the sake of this blog post, let's have look at an employee, Rosa:
We can see that Rosa has a grant of 1200 share options. Now, let's assume that Rosa finds another job, and leaves the company as a good leaver. We register a termination of Rosa:
We tell the Capdesk platform to cancel all options not vested as per the termination date. When we now inspect Rosa's vesting schedule, we can see that it has adjusted to the new reality - 550 cancelled, and 650 left.
Let's now also assume that Rosa exercises 400 of her 550 vested options within some agreed grace period from her termination date. We register an exercise of the 400 options on the exercise date. 3 months after the termination date, the remaining un-exercised options lapse. All in all, we can drill down on Rosa's grant and find the 4 underlying transactions:
This is of course all awesome. But things get even better. The transaction history of Rosa's grant actually also serves as a way to inspect all historical versions of Rosa's vesting schedule. For instance, inspecting the original grant transaction issuing the 1200 options, we see the original vesting schedule (the version as of 1.1.2016):
However, if we inspect the vesting schedule details of the last transaction, the cancellation of the last 250, we see the state of affairs as it should look today: 650 vested as of 1.3.2018, and 250 un-exercised options cancelled on the 2.5.2018.
In short, handling vesting schedules on Capdesk is first and foremost accountable and extremely transparent, with all grant transactions and historical versions of schedules available right there on the grant. It goes without saying that it's easy to bulk import options data with various vesting structures, in case you need to manage a larger volume. And finally, it's easier than ever to get an overview of aggregate figures such as Vested, Outstanding, or Total Granted - also over time.