Source: Skillshare/Medium, Aug 2019
To determine the target value of the grant, there is a multiplier applied to the salary for every role/level in the company. Here are the multipliers that we use at Skillshare as of today:
- Exec team/C-level: 2.45
- VP: 1.86
- Director: 0.54
- Specialist/key contributor IC: 0.43
- Sr. Engineer: 0.40
- Engineer: 0.26
- Individual contributor/most staff: 0.23
take the new hire compensation and factor in the multiplier above. For example, the target grant value for an individual contributor making $80,000 a year would be ($80,000 x 0.23) = $18,400.
To determine the value per option, you need to first estimate the true market value per share. We take our current monthly revenue, multiply by 12 to annualize it, and then apply a 5x revenue multiple. You might say that 5x is too low, and it likely is for a competitive finance or M&A process, but it is a comfortable multiple for the purposes of the option grant process. I would rather the multiplier for stock option grants be a little too low than a little too high. For any growth funds out there reading this, I expect more than 5x in our next round so don’t lock in on that number 🙂
You then take your estimated market value per share and subtract out the current strike price. Some companies skip this subtraction and just use the market value, but in later-stage companies, the strike does start to become meaningful so at Skillshare we take it out. In the generic example below, we get to a $13 value per option. This is the $15 estimated market value per share less the $2 strike price.
The final step: you then divide the target grant value ($18,400) by the notional value per option ($13) to get to an initial new hire grant of 1,400 options (rounded to nearest 50).
or Companies and Managers: How we handle refresh grants
Once you are an employee, there are 3 ways to get additional stock options.
1) Biannual refresh. Every 2 years, we grant you 25% of what a new hire would receive in your role at that time. So if new hires at your level/function are getting 4,000 options as of your 2 year anniversary, you would get a refresh grant of 1,000 options.
2) Merit grants. If you’re doing a great job, we give you additional grants. I think of your cash comp as reflective of the value you are bringing day-to-day and your equity grants as a reflection of how you will impact the value of the business over the long-term. If you are doing amazing work that will drive long-term value for the business, we may give a merit grant as part of our standard review cycle.
3) Promotions. When you get promoted, we run your comp and level through the options calculator for that role. We then grant you stock options to get you to the same level as a new hire in that same position. In the event that you already have more options than that level (due to being a very early employee, or getting merit grants in the past) we treat it like a biannual refresh and give you 25% of what a new hire would get.
For employees: Calculating the value of your stock options