A reader writes in,
Have you ever had to build up a plan for outplacement of a great employee who just wasn't as valuable anymore?
This is a tough one. Its not uncommon for your best employee when you are 10 people to have a hard time fitting in to the org chart when you are 50 people. What do you do with someone who has a ton of internal knowledge, sweat equity and commitment but lacks the skills or experience to own a function at the next level?
First, let's talk about early startup employees. The value proposition is totally whack:
1) High risk
2) Low cash compensation
3) Modest reward deteriorated further by unrealistically long vesting, ISO rules post employment termination, tax implications of stock compensation, and 10 year life span of options.
What you get as an early employee is experience; Experience that you should take to a larger company after your tour of duty is over where there is better risk / reward balance. If you really want to attract a seasoned person (or be equitable) and you are seed stage sub-10 person company you should offer the following:
1) 2 year vesting, 6 month cliff (can be slightly smaller grant than a seed stage 4 year grant, but not by much)
2) 10 year exercise period.
Not saying you keep doing this post-Series A, but we should all recognize that the early stage employee is taking on (less but) a lot of risk with far less reward than the founders or VCs.
Okay, moving on to reality where this type of incentive package doesn't exist:
This advice is for the truly foundational employee. The ones that really made the company happen. Your steady Eddy who did the job well but didn't move the needle doesn't require the same amount of touch. Generally, you can refer to my Outplacement post for how to handle folks generally.
The first conversation you need to have with the employee is exploratory: What do they want to do next? Acknowledge that their current scope of work is changing. Say that it's really important that you and them find the right next thing.
I'll cover this in a follow up blog post, but if their is any ambiguity around your role and your boss or HR ever casually asks you "What do you want to do next?" It means they are going to push you out. Come to grips with that, and I'll tell you what to do next in another post.
In a follow up meeting, once you have some idea on what they are looking for (or if they are stumped) be clear that they wont make sense in their current role (either because it is being deprecated or because they are no longer qualified for it) and tell them it is really important that we figure out an opportunity either inside or outside the company to transition to.
You've just mentioned the prospect of them leaving the company. It may be the first time they have considered that.
In the next meeting you will want bolster their sense of security. Continue to triangulate what they want to do next and communicate that there are not relevant internal opportunities. To communicate security, comment that "Even if you need to leave, we'll make sure you have plenty of time to find another opportunity and we'll of course prepare a severance package to smooth out the transition". I also like framing this as a Sabbatical: "Hey, how about you take 3 months off, see family, travel, do what ever. Figure it out and we'll stay close and see if anything opens up here but mostly focus on what is next outside of the company". Sometimes the right opportunity does pop up, but here you are creating some separation for them to think about what is next.
Finally, you need to get a date. What is their last day. What is the severance. You both have to figure this out and agree on terms. Its after 2-3 meetings and 2-3 weeks at the earliest until the employee will be in a place to have this conversation.
I think for an early stage employee that you need to manage out for non-performance issues providing 3-months of paid leave with a 3 month severance package is generous and fair. You are giving them a break (to think about the future) and you are giving them enough runway to figure out the right next step. On that last day, your goal is to celebrate their accomplishments as a team. Have a big lunch or rent out a bar. This employee did it and they deserve a big send off.
But it doesn't stop with the first conversation or when you finally have a date. It doesn't stop until that employee has a job. That's your joint venture. You owe it to them to turn their time with you into a launch pad. Turn over every stone. Pick up the phone. Do them a solid.
And when you start something up again, remember them. Sometimes these folks make great co-founders on the next turn at the wheel.