November 21st, 2006 by Hugh
Martin King told me about Exbiblio’s innovative share option scheme on the ferry leaving central Seattle. I recorded his thoughts using a digital recorder, and he tells me that one day I will be able to use the oPen which will include a voice memo facility.
He feels passionately that the option scheme is central to Exbiblio’s values, and he hopes that it will be emulated by other companies and help redefine American capitalism.
“The historic model of options in early stage technology companies is the American lottery culture model,” he tells me. “The first 20 people to join the company win the lottery and end up making $5 million to $10 million to $20 million dollars each by sheer luck. And that is a terribly costly outcome both for society and the natural world.”
“To put those kinds of extreme resources in the hands of individuals to the complete neglect of competing interests like the natural environment and society is just not a model that works in the world. It doesn’t address our needs.”
Bearing the above in mind, Exbiblio has devised a share option scheme to provide motivation and opportunity to employees, while also taking into account competing interests.
Employees at Exbiblio who qualify for the scheme receive options in two forms. Half their options come as a traditional right to buy Exbiblio shares at a certain price. This part of the scheme is more or less like the majority of share option schemes, with unlimited upside for the employee if the company prospers.
However, the other half of the share option grant has a capped upside. Once the company is deemed to be worth $100 million in total, Exbiblio’s non-for-profit foundation, Compendia, will have a right to buy out this part of the employee’s grant. The employee will receive fair value for the shares at the time. If he or she holds holds half a percent of the company in this part of the scheme, then it will be bought out for $500,000. However, from that moment on, the shares will belong to Compendia.
For example, should Exbiblio ever be worth $1 billion, then the half a percent that Compendia has bought from that employee will be worth $5 million. This money will be spent by Compendia on environmental causes, thus achieving the aim of sharing a company’s success with the world.