The Psychology of Giving Fewer Options at Startup

There’s something strange about the Incentive Stock Option system at Startups in America. Suppose the founders want to make employees work harder. It is to his greatest advantage to give his employees as few stock options as possible. This is not to preserve his own stock options or reduce dilution, but to motivate the employees to work harder.

Because typically, bosses at work get somewhere from 100x to 1000x the stocks an employee has. So a founder who is comfortable with a $1Billion IPO means his employees will only get similar level of reward if the company IPO’s at $100Billion or even $1 trillion. So the employee has to aim much higher than the founders.

This may explain why often the executives at companies will make obviously irrational decisions. They already have $10million, why go to the extra leg of getting to $20million?

But the employee has only $100k, getting to $200k is a huge improvement on quality of life.

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