Before outlining our policy, we want to explain how we got there. First and foremost, we think aligning incentives is both 1) the best policy for growing a business and 2) the right thing to do.
As Reboot succeeds, all employees should share in the company’s success.
The most common incentive programs for early stage startups are 1) equity grants and 2) stock options. We do not like either of these for us.
Reboot differs from many startups in that we 1) have no outside funding 2) are not eyeing any type of liquidity event and 3) aim to be profitable annually.
We believe this makes both equity grants and stock options more complicated than they are worth.
Equity grants are 1) taxable based on current valuations 2) create more difficult accounting for everyone (K1s) and 3) introduce scenarios where taxes and cash flow do not line up.
Stock options, while avoiding the K1 taxation problem, add their own complexities. Primarily, it is tough to calculate the correct strike price with no outside funding. Additionally, options are not useful without a liquidity event.
At Reboot, we expect to be profitable and cash flow positive on an annual basis. We think there is no better way to reward those causing that success than to put money directly into their pocket.
There are two common approaches, both with advantages and disadvantages:
We think profit sharing should be the primary driver to align incentives. Companies are, after all, designed to make a profit. We will either all make money or all not make money. Either way, we’ll do it together.
However, we wanted to leave a little wiggle room to reward Rockstar performance.
Rather than doing profit sharing on an individual level, we will allocate a total percentage for all employees. As we grow, each individual's piece of the pie will decrease, but the size of the pie will grow.