"We treat this entire idea purely as a bonus in the unlikely even of a future sale/IPO."
At far too many companies, equity is seen by the employer and employee as a form of cash-equivalent compensation, even though it isn't unless that equity has an income stream attached to it (as would be the case in, say, a grant of restricted stock in a company that pays dividends). So it's somewhat refreshing to see a high-profile tech company eschewing this.
The problem here is that 37signals' "plan" lacks all substance. The company doesn't intend to go public or seek acquisition, and its "bonus pool" is potentially limited to just 5% of any acquisition price.
As such, this "plan" doesn't promote retention the way equity does, and for all intents and purposes, it doesn't promote much of anything as the savvy employee will never expect it to bear any fruit.
Put differently, this "plan" feels sort of like an equity version of a poorly-made Louis V. knock-off. While, to its credit, 37signals' isn't pitching this as a justification for a less-than-market salary, there's a strong argument to be made that offering an equity substitute like this is worse than not offering equity at all.
The better approach for a company like 37signals? Make sure salaries are highly-competitive, offer an attractive benefits package and, if you want employees to feel like they have a direct "stake" in the company's success, implement a profit sharing plan. The benefit of this approach is that you attract the type of employee who wants to work at a company like yours without creating any confusion on trying to pretend that you're offering something that you're not willing to offer.
At far too many companies, equity is seen by the employer and employee as a form of cash-equivalent compensation, even though it isn't unless that equity has an income stream attached to it (as would be the case in, say, a grant of restricted stock in a company that pays dividends). So it's somewhat refreshing to see a high-profile tech company eschewing this.
The problem here is that 37signals' "plan" lacks all substance. The company doesn't intend to go public or seek acquisition, and its "bonus pool" is potentially limited to just 5% of any acquisition price.
As such, this "plan" doesn't promote retention the way equity does, and for all intents and purposes, it doesn't promote much of anything as the savvy employee will never expect it to bear any fruit.
Put differently, this "plan" feels sort of like an equity version of a poorly-made Louis V. knock-off. While, to its credit, 37signals' isn't pitching this as a justification for a less-than-market salary, there's a strong argument to be made that offering an equity substitute like this is worse than not offering equity at all.
The better approach for a company like 37signals? Make sure salaries are highly-competitive, offer an attractive benefits package and, if you want employees to feel like they have a direct "stake" in the company's success, implement a profit sharing plan. The benefit of this approach is that you attract the type of employee who wants to work at a company like yours without creating any confusion on trying to pretend that you're offering something that you're not willing to offer.