Guidelines for Running Employee Secondaries

Heading into 2026 I made a goal to extend my network to our readers. And the best way to do that at scale is to create a safe place to ask questions and get answers from real life CFOs and finance execs. As much as you may like to hear me ramble, my network is 10x smarter. So let’s get you introduced!

This week we have the following CFOs answering your reader questions:

You can submit a question for next month using the quick form below

Today’s topics:

Teddy from SeatGeek:

First off, congratulations on reaching this milestone! This can be a great opportunity to reward your long-tenured employees, enable some level of liquidity, and drive retention. Before we get to guardrails, I’d encourage you to over-index on communication and education. Town Hall info sessions, 1:1 office hours, and company provided third-party tax advisory services can go a long way in helping employees make informed decisions and feel supported throughout the process.

Here are some guardrails to consider:

Bonus tip: Check out the “cashless exercise” feature, which would allow employees to participate without putting up cash up front.

Greg from 1Password:

I have run two of these, and we always require employees to have two years of tenure to participate. I used 10% of vested equity in one of them, and 25% of vested equity in the other. Why the difference? In the 10% company, this was the second or even third offering, so we didn’t want people to empty their equity on secondaries. In the 25% company, it was the first one we ever did, and the company had been around for 8-10 years at that point. Also, we made sure to keep the requirements we set applicable to everyone - no exec or other groups got different terms.

Brandon from 2X:

Alignment on the “why” matters. Understandably, employees want some liquidity after years of below-market cash comp and paper worth they can’t spend. For the company, this event can be a retention and recruiting superpower. You demonstrate that your equity has real value, you reduce some golden handcuffs burnout, and ideally, you fend off competitive offers. But it requires careful structuring to ensure that alignment is met without taking focus off the end goal. Cap participation at 10-20% of vested shares, with an absolute value that isn’t life changing for employees (mileage may vary). Understand and communicate that there may be a requirement to haircut a pro-rata allocation if oversubscribed. Require 12-month post-sale retention commitments, restrict underperformers, maintain strict confidentiality, and get board approval on the total pool size. Most importantly, communicate that this early liquidity event is a benefit and a pressure-release valve, not a regular occurrence that will be normal in the future. You’re building towards a much more significant outcome.

Brandon from 2X:

Ultimately, the profitability target in comp plans should align with the profitability target that the Board/owners are focused on. In my career, I’ve found Adjusted EBITDA to be the best metric, with the caveat that adjustments must be clear, documented, and agreed upon prior to the plan (rather than using them as a solve for a performance miss). Adjusted EBITDA measures the operational performance that most execs can influence without introducing the noise of non-cash items.

Net Income has too many accounting variables that operators can’t control, and FCF might penalize growth investments or inventory builds. Cash-based EBITDA will do just fine. Just avoid getting drunk on adjustments…

Greg from 1Password:

I agree with having a top-line metric as well as a profitability one. I would go with EBITDA or non-gaap operating income, with the non-gaap items clearly defined. I think this incentivizes management the most, as they have the most ability to control this one, specifically around OPEX management.

One could argue FCF, but this is more dependent on collections and can also be manipulated based on not paying things at the end of the year to achieve a number.

Teddy from SeatGeek:

EBITDA is top of mind for me. It’s widely understood, forecastable, and gives every executive a shared profitability goal without introducing noise from capital structure, accounting policy, foreign exchange swings, or working capital changes. While no single leader controls EBITDA, executives do influence the major drivers like bookings, marketing efficiency, headcount, vendor spend, and so on. EBITDA also avoids over-incentivizing cash timing or underinvestment that can come with FCF-based plans.

Brandon from 2X:

I hate spiffs that just throw more money at the same intended outcome that the comp plan is designed to drive. If reps consistently need spiffs to hit numbers, the comp plan is broken. Focus on fixing that with the CRO instead of constantly falling back on spiffs to drive more performance.

I am ok when they are used as tactical ammunition to drive action towards a specific needle that might be deprioritized under the existing comp plan structure. That could be things like a new product offering that came out mid-year, clearing some aged inventory that’s bogging down cash flow, or closing a bunch of Q4 pipeline by year-end (especially if there might be some structural incentive to let the deal slip into the next period). Make sure the spiff program is time-bound with clear success metrics and that the payouts are meaningful but not distracting from the main mission.

Greg from 1Password:

So, I generally agree, but also feel like it’s important for the CFO to give the sales leader some flexibility to do what they need to drive sales. The way I like to do it is bake in a quarterly amount that aligns to the total amount you want to comp the sales org if they hit the plan. Then, before each quarter begins, the sales team needs to submit what spiffs they want to run within the budgeted amount to get things calibrated. This way, it not willy nilly and is also driving the outcome desired for all 90 days of the quarter - not just the last month, which sometimes is used to simply provide extra compensation.

Teddy from SeatGeek:

My general view is that spiffs mask issues in the core compensation plan. When they are overused, they tend to pull deals forward rather than create true incremental activity, and can disincentivize long-term customer value. With the being said, spiffs can work when applied narrowly, rarely, and tied to a specific behavior that the base plan does not already incentivize (like selling a new product). They should be simple, binary, and clearly incremental (do X, get Y).

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Brandon from 2X:

Money changes behavior. I think you always have to charge something. When customers pay, they need to allocate budget, deploy the product seriously, and engage with urgency. Free pilots attract tire kickers who will ghost you after a couple weeks because there’s no real commitment or internal champion fighting for budget. If you can’t charge for your product - even coming out of the gates - you haven’t found product-market fit yet.

I’d look toward creative pricing structures that mitigate the risk of an early/unproven product for the customer, but trigger payment upon success. Maybe a pilot at cost with a success fee upon certain triggers hitting, or outcome-based pricing with a rebate/make-good if the success metrics aren’t hit.

And be aware… increasing prices is much more difficult than it seems in spreadsheet land.

Greg from 1Password:

Yes, without question. It is so critical to get customers, proofpoints, testimonials, etc. It’s important that if you do that, these customers will become partners to help improve things, provide endorsements, try multiple use cases if you have them, and more.

Teddy from SeatGeek:

I’ll answer this from the perspective of a software service buyer. I’m generally skeptical of zero- or low-cost pilots as a default go-to-market motion. When prospective customers don’t have real skin in the game, they’re far less likely to prioritize implementation, engage deeply, or make timely buying decisions. That often leads to drawn-out pilots, weak feedback, and false positives around product-market fit.

Pilots can make sense in very specific situations, particularly early on, when the product is new, buyer risk is high, and the goal is to learn quickly rather than scale efficiently. If you can tightly limit the scope, clearly define success criteria, time-box the effort, and support the required resourcing without distracting the broader organization, a pilot can be a useful learning tool.

But as a rule, if customers won’t pay for something early, the issue is usually value clarity, not price.

Brandon from 2X:

Greg from 1Password:

I manage my leaders to hitting their quarterly number. I do not get too hung up on what they are spending this on (within reason) as my peers should be better at allocating their capital towards their function than I could. I generally know marketing should be 60% programs/40% people, but I should not be better at allocating that than the CMO. So, as long as they are going to hit their number, I don’t micro manage the line items per se.

In summary, if they are doing things within the scope of their overall budget, then they can proceed. Now, with HC, I do agree that since it’s recurring, you need to make sure this fits in for the remainder of the year as well.

Teddy from SeatGeek:

More seriously, I love to be a CFGo over a CFNo. At startups, the only constant is change, and finance can help the requestor shape the ROI story of the role. I don’t have a comprehensive playbook (if it were only that easy!), but the general themes are around:

Stepping back from the individual request, having a regular operating cadence to evaluate off-budget requests can help you keep a higher-level view on the aggregate impact to spend, headcount growth, and strategic priorities, rather than making one-off decisions in isolation or under pressure.

A huge thank you to our real finance leaders of genius:

You can submit a question for next month using the quick form below