The classic alternative to options/equity is a partner track. That's how huge law firms and the big 4 accounting firms do it. There are multiple levels in the partnerships, and the upper levels are often pretty spectacular.
Partner tracks address some of the concerns Fried brings up here. For instance, they reward current employees and don't create a class of former employees with a painful claim on forward revenues. They're simpler than options (you're gunning to "make partner"; you don't need an Excel spreadsheet to figure out what a win is).
They also have downsides; for instance, the biggest partner tracks are also all up-or-out systems where competent employees who are assets to the team but not ambitious enough to make partner are incented to leave.
So the question I have is, why didn't 37signals do that? It's a proven model. I ask because I'm sure there's a reason, and I'd love to hear it.
Isn't this fairly onerous to administer? At my previous company, a private consulting firm, there are some shareholders who are kept around largely because there is not liquidity available and if you've been around for 25 years, even if much of this was during a period of demographically-driven economic growth, it's hard to get rid of you as a partner (since you have to be bought out) no matter how little value you provide.
I'm interested to hear why 37signals didn't go with this model and if they'd ever consider going with an S or C-corp over the LLC.
Partner tracks address some of the concerns Fried brings up here. For instance, they reward current employees and don't create a class of former employees with a painful claim on forward revenues. They're simpler than options (you're gunning to "make partner"; you don't need an Excel spreadsheet to figure out what a win is).
They also have downsides; for instance, the biggest partner tracks are also all up-or-out systems where competent employees who are assets to the team but not ambitious enough to make partner are incented to leave.
So the question I have is, why didn't 37signals do that? It's a proven model. I ask because I'm sure there's a reason, and I'd love to hear it.