Level-Based Employee Equity System
Tie stock-option grants to transparent levels and long-term contribution
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 96%
The Level-Based Employee Equity System embeds ownership into a private company's compensation architecture. Define job levels, then pair each level's salary band with a standard stock-option allocation. Use an independent third party to establish fair market value regularly, allowing employees to purchase vested options at the applicable price. A common structure is four-year vesting with a one-year cliff: the employee earns the first quarter after one year and the remainder over time. Document what employees can do while employed and the window for exercising after departure. This structure makes grants less arbitrary, encourages retention, and gives contributors a path to participate financially if the company is sold. Because later fundraising dilutes existing holders, leaders must also track how new rounds affect employee ownership rather than considering founder dilution alone.
Origin
At Blavity, every employee receives equity through level-based salary bands and option allocations, supported by recurring third-party valuation.
Core principles
- 01Ownership changes how employees make decisions
- 02Compensation rules should be consistent by level
- 03Vesting rewards sustained contribution
- 04Employees should share in an eventual company sale
How to run it
- 1
Define compensation levels
Create levels with consistent responsibilities and salary bands before assigning equity.
Pro tip Publish enough of the logic that employees can understand how grants are determined.
Watch out Ad hoc grants can create hidden inequities.
- 2
Attach option allocations
Set a standard option range or allocation for each level under the company's equity plan.
Watch out Use qualified legal and tax guidance; option rules vary by jurisdiction.
- 3
Price the options
Commission an independent fair-market valuation on a regular schedule and set exercise prices accordingly.
Pro tip Repeat valuation after material company changes as required.
- 4
Set vesting terms
Use a documented vesting cycle, cliff, and departure exercise window to reward sustained contribution.
Watch out Employees may misunderstand options as immediately liquid shares; explain the distinction.
- 5
Manage ownership over time
Communicate grants, monitor exercises and dilution, and preserve meaningful employee participation through financing decisions.
Watch out Repeated funding rounds can materially reduce existing employee ownership.
In the wild
Blavity connects salary levels to stock-option grants, uses a third party to price the private company, and applies four-year vesting with a one-year cliff. Employees may exercise while employed or during a defined window after leaving.
→ Contributors can share financially in an eventual sale, including people who helped build the company years earlier.
Common mistakes
Confusing options with liquid shares
Private-company options cannot usually be sold on an open market. Employees need clear explanations of exercise, liquidity, and risk.
Ignoring employee dilution
New rounds can reduce employee ownership alongside founder ownership. Model that impact before fundraising.
Is it for you?
Best for
It is best for private growth companies that want broad employee participation in long-term value creation.
Not ideal for
It is not ideal without legal, tax, valuation, and administrative support for a compliant option plan.
From the transcript
“every employee of bity get Equity”
“our salary bands that are based off of levels also include a a a set of stock options”
“the standard for our company is a 4-year cycle of vesting with a one-year Cliff”
From the episode
Morgan DeBaun: Your Startup Survival Kit, from VC Funding to Leadership
Morgan DeBaun