What is the Equity Delivery Index?
There are three angles to understanding the equity portion of a compensation package:
- "How big is the bag?" (what is the size of the equity portion);
- "How real is the bag?" (will you ever have a chance to turn paper money into cash money?); and
- "How often do you get the bag?" (is this equity package an active, reliable part of your compensation, or is the program full of gotchas).
The "size of the bag" is a straightforward question that we simply ask our respondents: the annualized equity value in their package. For the other two questions, Salary Confidential uses indexes to make equity compensation more easily comparable across respondents.
The Equity Delivery Index compares equity packages along the axis of reliability: how consistently equity compensation is actually delivered to employees over time.
The problem at hand: "How often do you get the bag?"
The other element necessary to compare equity compensation packages is how equity is delivered over time, and how structurally it is part of the package.
Equity may vest frequently or rarely. Some companies maintain structured refresh grants that keep equity as a continuous part of compensation, while others grant equity once and then treat new equity as an ad hoc discussion when the original grant has run out.
The Equity Delivery Index captures this structure. It considers:
- vesting cadence
- refresh grant policies
- the presence of a vesting cliff
Cliffs are a ding, but a small one
Cliffs are included in the model but only create a small discount. Once an employee passes the cliff, the restriction no longer affects the ongoing delivery of equity, so the model keeps the weight of one-time cliffs very limited.
We also do not consider the presence of a cliff to be a structural way to manipulate an equity package. In most cases, it is simply a defensive move to de-risk new hiring decisions.
Vesting cadence is a non-linear scale
Vesting cadence determines how much equity is ever at risk at a given moment.
If equity vests once a year, an employee can be carrying up to twelve months of unvested equity at risk. If vesting happens every six months, that exposure drops to six months. With quarterly vesting, it drops to three months. With monthly vesting, the risk window shrinks to just one month.
Because each improvement reduces both the amount of equity that can be lost and the time it remains exposed, vesting cadence has a much larger effect than a simple "twice as many vesting events" description would suggest. For that reason we score cadence on a non-linear scale, and it carries the largest weight in the Equity Delivery Index.
We mentioned cliffs earlier, and EDI treats one-time cliffs and yearly vesting very differently. In practice, yearly vesting behaves like a permanent twelve-month cliff: employees are always carrying a full year of equity at risk. That is why yearly vesting receives a much harsher score than a one-time one-year cliff at the start of a standard vesting schedule.
Refresh grant policies (why we include them in EDI)
Refresh grant policies (none; irregular; performance-based; annual) receive scores that feed into EDI.
Technically, refresh grants are not about the delivery of existing equity, but about the continuation of equity as a component of compensation. A structured refresh policy means that the ongoing delivery of equity is established and predictable, and can therefore be incorporated by employees into how they evaluate their compensation package.
Since you are running a Salary Confidential survey, we assume you are trying to understand how serious, how meaningful, and how reliable equity compensation appears to be across your peer set. From that perspective, knowing that a company treats refresh grants as a structured part of compensation over time improves how we evaluate equity delivery.
Tl;dr
The Equity Delivery Index is expressed on a 0–1 scale. Higher values indicate that equity is delivered more frequently and with fewer structural slowdowns.
A note if you vest like Amazon
EDI does not model Amazon-style vesting yet. Amazon’s schedule is unusually backloaded over the four-year vesting period, which creates a very different risk profile than the linear vesting schedules most companies use (we think it behaves more like a series of cliffs with different weights).
We know about it. We will get there. It is just a surprisingly tricky case.