This allows us to:
1) Justly reward our employees to the upside (with cash, delivered semi-anually) if things go according to plan
2) Automatically controls costs if we don't perform as a team
3) Achieve upside fairness across early vs late employees since we can adjust the bonus % as we hire each new person
4) Eliminates oddities due to variations in company valuations where swaths of employees end up underwater due to bad luck of timing
Downsides:
1) the tax treatment of bonuses as income rather than capital gains is nominally worse; but given the complications with options, it probably works out better for all but HUGE equity gains
2) this plan might not work well for a company that will be pre-revenue for many years, but that should be a pretty far outlier case.
All-in-all this allows us to offer the opportunity for employees to earn above-market comp without having hope they get lucky with company growth, market timing, and their timing of joining the company.
It's been 3 years now and so far, so good!
