Meaning
Compensation schedules in startup agreements link the share buyback price of a departing founder to their duration of service at the firm. Through tier leaver schedules, the percentage of shares the company can buy back at a discount decreases gradually for each year the founder remains active. This structure incentivizes the founder to continue working at the company by increasing the cost of an early departure.
Schedule Mechanics
Milestone tables specify the exact retention periods and the corresponding share buyout prices. When a founder departs after only one year, tier leaver schedules allow the company to buy back a large portion of their equity at a nominal price. If they depart after four years, the buyout price rises to fair market value, protecting the founder’s earned upside.
Operational Cost
Remaining in a high-stress role to clear these milestone tiers requires an enormous expenditure of personal energy and hours. Founders may find themselves trapped in a toxic work environment or experiencing burnout, yet feel compelled to stay to avoid forfeiting their equity. This situation places a heavy mental toll on the individual, forcing them to balance their well-being against the financial value of their shares.
The daily grind can lead to a decline in their operational effectiveness, representing a cost to both the person and the enterprise.
Contractual Limit
The tiered pricing model ceases to apply once the founder passes the final vesting or retention milestone. Once this threshold is reached, all shares are held fully and are subject only to standard buyback provisions at fair market value. Consequently, the schedule defines the boundary of the company’s leverage over the founder’s service.
