Chris Zaharias has been a startup employee and founder for 22 years. Now he’s encouraging fellow Silicon Valley workers to stand up and ask their bosses some important questions.
Often, only a few employees get rich when a startup exits. Many are shocked to discover how little their shares are really worth because their employers don’t provide transparency around fundraises, internal structure and valuations.
Zaharias wants to change that by empowering employees with knowledge.
Recently, Zaharias held a “pep rally” where he presented an “Employee Equity Bill of Rights.” The event was only for employees; it banned startup founders and VCs. Re/Code’s Nellie Bowles was there. She says Zaharias called for a “Rosa Parks” moment, where all employees stand up for themselves, together.
“Stocks are the only way engineers can get rich and retire. Remember that,” Bowles quotes Zaharias. “To live here in Palo Alto, you need about $US1 million dollars in equity gains. And given that only one in five startups are going to amount to something, you need to get that to happen.”
Zaharias’s fighting words are overly dramatic. Comparing Silicon Valley to the Civil Rights movement is warped.
But his mission is spot on. Zaharias says two-thirds of people don’t know the number of shares outstanding in their companies. As a result, when their company is sold they can end up with much less than they thought.
Zaharia is simply asking for transparency from startups to its employees about how much their stock is really worth. This is a completely reasonable demand.
Here’s the Bill of Rights Zaharias wants to see enforced:
The employees of startups have expressed a desire to set forth certain rights to best ensure the security of their ownership in the value they create. This is a draft proposal of such rights, which we hope will gather many collaborators and become the standards to which startup employee equity holders can hold any management or investment teams to account.
Right to Know.
Company information on capitalisation and valuation, being necessary to the employee’s negotiation of a fair compensation package, shall be provided to the employee with his or her equity offer and after each dilution and valuation event.
Right to Value.
The right of the employee to earn the full value of his or her grant shall not be limited by unreasonable vesting terms.
Right to Keep Vested Shares.
The right of the employee to hold vested equity up to an acquisition or public offering shall not be violated, and no forfeiture, repurchase or other provisions shall allow the company to seize vested equity of current or former employees.
Right to Tax Benefits.
The employee shall enjoy the right to all tax benefits, and shall not be subjected to tax penalties due to company negligence, at grant, vesting, settlement, company acquisition or sale of stock.
Right to Enforce.
The right to enforce this Bill of Rights shall not be violated by company limits on access to information or legal counsel necessary for such enforcement.