Unlocking the golden handcuffs
All about Pinterest’s new options extension program
A lot of folks have asked about the recent change we made to our stock option program. So, I thought I’d share some background on why we did it, and explain how it works.
At Pinterest, we’re building something that we hope will enable anyone to go out and live a more inspired life. It’s a huge goal and we need the most talented, creative and passionate people to make it happen.
When we hire, we look for people who genuinely care about our mission, and are as fired up as we are to see it through. And once they’re here, we make sure the work they do is creative, fun and impactful. We know (and motivation theory backs us up) that perks like free meals and standing desks are pretty cool, but what inspires people to do great work for the long haul is a sense of purpose. People have to know in their hearts that the work they’re doing really matters.
But sometimes there are things that get in the way of people doing their best work.
The “golden handcuffs” problem
Like other startups, Pinterest gives our people stock in the company. That way they’re truly owners of the service they’re helping to build.
Unfortunately, the way things usually work in startups is that if someone ever decides to leave, they have to pay for their options along with some hefty taxes — otherwise they lose whatever stock they’ve earned. And they only get 90 days to do it (a period of time that comes straight from the IRS tax code). As a result, some people wind up sticking around longer than they really want to, just because they can’t afford to leave.
Many companies who face this situation decide not to do anything about it, because they believe “locking people in” is good for business. Any stock that people leave behind can be reinvested into those who stay with the company long-term.
But at Pinterest, we think about things a little differently:
1. Fair’s fair. The people who work at Pinterest pour their heart, and lots of late-late hours, into their work. A piece of them remains here when they leave. It just doesn’t feel right for them to leave with nothing. We believe if you’ve made a meaningful contribution to Pinterest, you deserve to keep your equity.
2. We want people here for the right reasons. Everyone should be here because they’re passionate about their work — not because they feel handcuffed by their stock options.
3. People who feel stuck take fewer risks. Thriving at a startup means taking risks and trying all kinds of crazy new ideas. If people are worried about getting fired and losing all their stock, they aren’t going to be as willing to make the kind of bets that help a young company like ours succeed.
4. It takes creative, inspired people to make something creative and inspired. But it’s hard to feel this way if you’re only staying because you feel trapped. The kind of company we’re trying to build only works if we’re all exactly where we want to be.
5. People often have totally valid reasons to leave a company. Some real reasons people have left Pinterest include: starting their own company, moving to support a parent in need, or deciding to go back to school. Did this mean these people didn’t work hard and add value to our company? Absolutely not.
So here’s what we’re doing instead
People like Ben Horowitz and Sam Altman have talked about the best way to be fair to people who leave and those who stay. These guys have taken opposite sides of the debate. Here’s where we landed: We hope Pinterest will always be the place people feel most inspired to work. But if that’s no longer the case, we want to be fair and do right by our team. We think people should keep what they’ve earned.
So, if you’ve worked at Pinterest for at least 2 years but decide to leave for any reason, instead of the usual 90 days we’ll give you 7 years to exercise your options. This means you get to keep your vested equity, even if you can’t afford to buy it. (You’ll find all the nitty gritty details below.*)
Yes, there are some risks
Were there things that worried us about making such a big change? Sure! We’ve just made it much easier for team members to leave in one of the most competitive recruiting environments of all time. But that’s a trade-off we got comfortable with. Not only do we think it’s the right thing to do, we think the people who choose to stay with us and build Pinterest will be here for the right reasons.
Ultimately we hope the new plan gives our team the flexibility to make the right decisions for wherever their lives take them. And that it unlocks even more of their passion to help us make Pinterest the kind of historic company that we all know it can be.
*PS: If you really want to geek out…
Want more details about how the new system works? Here’s the lowdown: At someone’s 2-year anniversary, we notify them that they have a month to decide whether or not they want to change their option agreement from a 90-day expiration to 7 years. We picked 7 years to be safely within a future liquidity event. If the person chooses the 7-year plan, any current or future ISOs they have will become NSOs. This is because by law ISOs can’t have a post-termination exercise period of more than 90 days. The tradeoff being that ISOs tend to be a little better than NSOs for tax reasons, but that’s only if the person actually plans to exercise the option. Because we are lucky enough at Pinterest to have a rapidly rising valuation, exercising options can be pretty expensive. So we expect many people will opt for the flexibility and safety of keeping their options beyond the 90 days.