The Peer Fund: A new way to fix employee retention
It’s a common issue for large, private tech companies: great employees often jump ship after 2–3 years. People who stay after 4 years are a rare breed, and generally their days are numbered, too. When companies are taking 7–10 years to go public (or longer), this employee churn creates a huge loss in institutional memory, productivity, and culture.
For employees, it’s actually rational behavior. Once you have a stake in a private company, you want to hedge and de-risk. Just like VCs, employees are seeking to create diverse portfolios of great companies. But, in general, when companies try to retain great employees, their main tool is more equity in that company. This doesn’t address the issue of the employee wanting to diversify their opportunity for upside.
Tender offers, where companies assist employees in selling some of their stock early, has been the main tool to counter hedging, but it’s a blunt tool: it’s happens rarely (and not reliably), it’s restricted to a small percentage of an employee’s ownership (appropriately), but most of all, it doesn’t really address the key issue for long-standing, valuable employees: opportunity cost. The problem isn’t just hedging existing equity, it’s the opportunity of getting a bigger stake of their current company vs a new company.
The Peer Fund
Here’s a new idea: companies like Pinterest, Airbnb, Lyft, Slack, and a host of other successful private tech companies create a common pool of stock for employee retention and refreshes: a Peer Fund.
After employees stay on for 4 years, they would become eligible for a refresh grant from a pool of the Peer Fund, which provides tremendous value they couldn’t get by leaving, as this private stock is hard to obtain and valuable.
For example, after 4 years of working at Lyft and vesting Lyft stock, what if your refresher grant were a mix of Airbnb, Pinterest and Slack? I bet that’d be a lot more compelling than just getting additional Lyft stock.
One assumption is that employees will still be most loyal to the company they work at, and not create conflicts of interest. I think this would hold true, not just because of their outsized equity, but from culture and loyalty. The real hypothesis is that this would motivate employees and make it rational for them to have longer careers at great companies, with the appeal of meaningful upside in a special array of companies, without needing to switch jobs every 2 years or so.
