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.