At GitLab we strongly believe in employee ownership in our Company. We are in business to create value for our shareholders and we want our employees to benefit from that shared success.
In the compensation calculator (only accessible to GitLab team-members and candidates), you can find some more details on the most recent valuations as well as potential valuations.
This guide is meant to help you understand the piece of GitLab that you’re going to own! Its goal is to be more straightforward than the full GitLab 2015 Equity Incentive Plan (the “2015 Equity Plan”) and your stock option agreement which you are advised to read, which both go into the full legal details. Please note, however, that while we hope that this guide is helpful to understanding the stock options and/or stock issued to you under the 2015 Equity Plan, the governing terms and conditions are contained in the 2015 Equity Plan and the related stock option agreement. You should consult an employment attorney and/or a tax advisor if you have any questions about navigating your stock options and before you make important decisions.
Three things must happen for your stock options to be meaningful:
At GitLab, we give equity grants in the form of Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs). The difference in these two types of grants are, generally, as follows: ISOs are issued to US employees and carry a special form of tax treatment recognized by the US Internal Revenue Service (IRS). NSOs are granted to contractors and non-US employees. It’s called an option because you have the option to buy GitLab stock later, subject to vesting terms, at the exercise price provided at the time of grant. Solely for the purposes of example, if you are granted stock options with an exercise price of $1 per share of common stock today, and if GitLab grows later so its common stock is worth $20 per share, you will still be able to buy the common stock upon exercise of your option for $1 per share.
The reason we give stock options instead of straight stock is that you do not need to spend any money to purchase the stock at the date of grant and can decide to purchase the stock later as your options vest. In addition, we do not provide straight stock grants since this may subject you to immediate tax liabilities. For example, if we granted you $10,000 worth of GitLab stock today, you would have to pay taxes on the value of the stock (potentially thousands of dollars) for this tax year. If we give you options for $10,000 worth of stock, you generally don’t have to pay any taxes until you exercise them (more on exercising later). Please read the Stock Option section of the Tax Team.
Stock options may be available to a GitLab team member as part of their overall Total Rewards package. The stock option ranges by role are calculated as follows:
Definitions:
Note: All stock option grants are subject to approval by the Board of Directors and no grants are final until such approval has been obtained. The company reserves the right in its sole discretion to make any adjustments to stock option grants including the decision not to make a grant at all.
New hire grants use the formula above multiplied by a New Hire Multiplier. The New Hire Multiplier is typically 2, but may vary.
If you have any questions on what grant should be offered to a new hire, please reach out to the Total Rewards team by email at total-rewards@gitlab.com.
As part of the updated Annual Compensation Review process, eligible GitLab team members will be reviewed for a refresh grant once per year. Refresh grants use the formula above to determine the range of stock options a team member may be eligible for in that cycle based on their current role/grade. Refresh grants will vest in accordance with the equity plan agreement between GitLab and the team members.
Note: All stock option grants are subject to approval by the Board of Directors and no grants are final until such approval has been obtained. The company reserves the right in its sole discretion to make any adjustments to stock option grants including the decision not to make a grant at all.
Team members may be eligible to participate in the annual refresh grant cycle review if they have completed six months of service with the company. However, participation will be based upon individual team member performance (including if a team member is currently in good standing) and key talent criteria. Therefore, not all team members will receive a refresh grant in the annual review cycle. Similar to our current annual cash compensation review process, leaders will have discretion on the size of the refresh grant based on performance and equity budget allowance as allocated to each E-group member’s division. All proposed grants will be reviewed by the People team for pay equality. All proposed stock option grants are subject to review and approval by the GitLab Board of Directors.
GitLab has completed its first annual refresh grant program in Q1 FY22. In order to move GitLab team members from a 3.5 year refresh cadence to an annual refresh cadence, this fiscal year, due to the change in cadence of this process, a one time transition multiplier was applied to all eligible team members based on time since the last new hire or refresh grant. The cut off date for this multiplier was March 17th. This transition multiplier will not be used going forward in future annual refresh cycles.
| Time Since Last Grant | Transition Multiplier |
|---|---|
| 3+ years | 2.00x |
| 2.5 - 3.0 years | 1.75x |
| 2.0 – 2.5 years | 1.50x |
| 1.5 - 2.0 years | 1.25x |
| < 1.5 years | 1.00x |
Key Talent (~10% of overall population) was identified during the FY22 Equity Refresh program. For more information, please refer to the Key Talent section on the Talent Assessment handbook page.
| Date | Action |
|---|---|
| 2021-03-22 | Compensation Calculator updated to include equity range calculator. |
| 2021-03-24 | Grant Amount & Total Rewards Statements Uploaded to BambooHR (stock options table turned off in BambooHR for self-service). |
| 2021-03-25 to 2021-04-09 | Leaders/Managers to notify team members of grants and share Total Rewards Statement in BambooHR. |
| 2021-04-12 | Equity Grants added to Carta, access to stock options table in BambooHR turned back on. |
Q: What happens to my existing awards?
Awards granted prior to FY22 will stay the same. The annual equity refresh changes will only apply to any new equity grants you may receive.
Q: What is the vesting schedule for new equity grants?
New equity grants will follow the same four year vesting schedule, with a one year cliff, then vesting monthly thereafter that is currently in the handbook.
Q: How will the new equity percentages be determined?
To determine a fair and equitable stock option percentage, we have and will continue to carefully look at market benchmarking to make sure that option grants are competitive. GitLab uses an external equity consulting firm for this analysis and to verify GitLab’s model.
Q: If I receive an equity refresh grant, is it based on my latest performance review?
In most cases, your equity refresh grant will be based on your latest performance review. However, in some cases, your performance is not strictly based on your most recent performance review. For instance, someone may have been deemed “developing” because they were recently promoted to a new level. They may be “performing” or “exceeding” for the equity review process on account that they were rated “developing” solely due to their recent promotion. A team member may also be considered “key talent” in which case that will also factor into their equity refresh grant.
Q: How is key talent determined?
Managers will use their discretion to determine key talent (~10% of overall population). Key talent is defined as:
Q: Will everyone receive a refresh grant?
In the FY22 Equity Review cycle, not everyone received an annual refresh grant. It is important to note that under the new program, the amount of annual refreshes will be based on your performance, role, and location. In our performance-based culture, we want to incentivize team member’s performance by recognizing team member contributions to GitLab. As these factors will be reviewed annually, even if you do not receive an annual refresh one year, that does not affect your ability to potentially receive a grant in following years.
Q: Will the equity grants be equitable?
The GitLab Total Rewards team conducted a pay equality analysis to ensure fairness in decision making.
Q: How are the dollar ranges converted to a # of options?
Based on the value of the stock options using the Stock Grant Assumption price.
Q: When will the next equity refresh cycle be?
Moving forward, we will align the annual equity review with our annual compensation review, which has historically occurred in Q4.
Promotion grants are based on the differential between the new hire stock options at the new grade minus the new hire stock options at the current grade using the median of the compensation range. The vesting schedule for your new stock option grant will align the date of your promotion.
Formula for number of Promotion Stock Options: ((New Role Median x Equity Percent x 2) - (Current Role Median x Equity Percent x 2)) / Stock Grant Assumption
The value of the stock options granted depends on potential value scenarios which can be seen using the Equity section of the Compensation Calculator.
Vesting means that you have to remain employed by, or are otherwise a service provider to, GitLab for a certain period of time before you can fully own the stock purchased under your stock option. Instead of giving you the right to purchase and own all of the common stock under your stock option on day one, you get to own the stock under your stock option in increments over time. This process is called vesting and different companies offer vesting schedules of different lengths. At GitLab, our standard practice is to issue options with a four year vesting schedule so you would own a quarter of your stock after 12 months, half of your stock after two years, and all of it after 4 years. Vesting happens on a monthly basis (so you vest 1/48 of your options each month), but many vesting schedules include a cliff. A cliff is a period at the beginning of the vesting period where your equity does not vest monthly, but instead vests at the end of the cliff period. At most companies, including GitLab, this cliff period is generally one year. This means that if you leave your job either voluntarily or involuntarily before you’ve worked for a whole year, none of your options will be vested. At the end of that year, you’ll vest the entire year’s worth (12 months) of equity all at once. This helps keep the ownership of GitLab stock to folks who have worked at the company for a meaningful amount of time.
This section deals with dilution which happens to all companies over time. In general companies issue stock from time to time in the future. For example, if company XYZ needs to raise money from outside investors, it may need to create new stock to sell to those investors. The effect of additional stock issuances by company XYZ is that while you will own the same number of shares as you did before such issuance, there will be more total shares of outstanding and, as a result, you will own a smaller percent of the company – this is called dilution.
Dilution does not necessarily mean reduced value. When a company raises money the value of stock will stay the same because the company’s new valuation will be equal to the old value of the company + the new capital raised. For example, if company XYZ is worth $100m and it raises $25m, company XYZ is now worth $125m. If you owned 5% of $100m before, you now own 4% of $125m (20% of the company was sold, or, said differently, your 5% stake was diluted by 20%). The 5% stake was worth $5m before the fundraising, but the 4% stake is still worth $5m after.
Funding rounds can have both primary components and secondary components. Primary components result in dilution as described here, but secondary rounds are a bit different. Rather than new shares being issued, participants in a secondary exchange their funding for existing shares. You can read more in this Quora article.
Companies from time to time undertake stock splits. A stock split has no economic impact on the stockholder. The split simply increases the number of shares by a certain amount and reduces the price by an equal, offsetting amount. For example, if a stockholder had 1,000 shares at $10.00 per share (total value $10,000), and the Company executed a 2 for 1 stock split, the shareholder would then have 2,000 shares at $5.00 (total value still $10,000). Nothing has changed. Public companies have historically split their stock to lower the stock price so that a broader set of investors could hold shares in the company. The theory being a lower price would make it easier for an individual investor to buy shares. Private companies perform stock splits to make themselves more comparable to other private companies. Companies that undertake IPOs typically go public in accepted trading ranges and then start trading from that point. So private companies will adjust their shares to be able to trade in those ranges at IPO. For further information, read this article.
Effective February 28, 2019 the GitLab Board of Directors approved a 4:1 stock split. All common stock, preferred stock and options were treated exactly the same in the split. The stock split will be reflected in Carta by the end of April. Why 4:1? We chose that ratio so that our shares will be comparable to other companies in our peer group, so that candidates considering coming to work at GitLab can make an informed choice on an “apples to apples” basis. We also took care to not split at too high of a ratio which could result in a reverse stock split prior to IPO and that is something we would like to avoid (but can't guarantee in any scenario).
"Exercising your options" means buying the stock guaranteed by your options. You pay the exercise price that was set when the options were first granted and you get stock certificates back. To give employees an opportunity to benefit from any existing tax incentives that may be available (including under the US and the Dutch tax laws) we have made the stock immediately exercisable. This means you can exercise your right to purchase the unvested shares under your option to start your holding period. However, the Company retains a repurchase right for the unvested shares if your employment or other services ends for any reason. An early exercise of unvested stock may have important tax implications and you should consult your tax advisor before making such decision.
Also, while the company has the right to repurchase the unvested shares upon your termination of services, the company is not obligated to do so. Accordingly you could lose some or all of the investment you made. Because we are a young company there are lots of risks, so be aware and informed of the risks. Please read this quora thread about most startups failing and this story of people paying more in tax for their stock than they get back.
In order to prepare for quarterly 409a valuations, the right to exercise your stock options will be suspended for a period of time leading up to the effective date and Board approval of the new valuation.
All exercise activity will be suspended one week prior to the effective date of the new valuation. Carta will be disabled for US team members. For non-US team members, paperwork and proof of payment/wire must be submitted by the last day to exercise. The window to exercise will open the 1st business day following Board approval.
The anticipated schedule is below and an announcement will also be made in Slack one week prior to the window closing, in an effort to keep team members aware.
| Anticipated 409a Effective Date | Anticipated Board Meeting (Approval) | Anticipated Last Day to Exercise |
|---|---|---|
| June 1, 2021 | June 17, 2021 | May 24, 2021 |
| September 1, 2021 | September 30, 2021 | August 24, 2021 |
| December 1, 2021 | December 14, 2021 | November 24,2021 |
If you leave the company, you will generally have 90 days to exercise your option for any shares that are vested (as of the last day of service).
In addition, if not otherwise expired (through termination of your employment), your stock options expire 10 years after they were issued.
Please note that until the post IPO lockup period has expired (or we are bought) company stock is not liquid. If your employment ends for whatever reason, you have a 90 day window to exercise your vested options, or lose them. During this window you would have to pay the exercise price and in some cases the tax on the gain in value of your stock options, which could be considerable. If the company stock is not liquid this money might be hard to come by. The 90 day window is an industry standard but there are good arguments against it. You may not purchase unvested shares after your service has ended.
At GitLab the stock options are intended to commit our team members to get us to a successful public listing of our stock. We want to motivate and reward our people for reaching that goal. Therefore we will consider exercise window extensions only on a case by case basis at our discretion. An example of a situation we'll consider is a valued team member quitting because of personal circumstances. In most cases there will be no extension and you will either have to pay for shares and the taxes yourself, or lose the options, even when you are fully vested. And, of course, being a publicly listed company is our public ambition, but neither the timing, nor whether it happens at all, is guaranteed.
If you leave GitLab after less than a year, your Carta account will stay active but all unvested GitLab shares (which will be all of them as our vesting schedule starts at 1 year) will show as expired and you will not be able to take any actions with those shares. At the exercise expiration date, since no options were exercised, all options will return to the option pool to be reissued by GitLab.
You can reach a Carta support rep by calling (650) 669-8381 but you will have to enter a support PIN that is associated with you. You can find this PIN by logging into your Carta account, clicking Help, then Contact Us and the PIN will be there.
Option grants are approved by the Board of Directors at regularly scheduled quarterly board meetings. After your grant has been approved by the Board you will receive a grant notice by email from Carta containing information relevant to the grant including the number of shares, exercise price, vesting period and other key terms. We use Carta to administer our stock option program.
You will receive the grant notice to your GitLab email address. Clicking through that email will enable you to set up a user account at Carta. You can find all of the terms and conditions of the stock program as well as your specific grant within the Carta system. You are safe to go ahead and click "Accept" for your grant, no payment or taxes will be incurred to you since you are not Exercising Your Options, you are simply confirming to GitLab that you accept the grant that was allocated to you.
As a helpful hint we suggest that you add a second, personal email address to your profile. This can be added by clicking on Profile and Security in the bottom left hand corner of the home screen after logging in to Carta.
There are two methods to exercise your shares:
stockadmin@gitlab.comNote for US residents: whichever method you choose, if you early exercise unvested shares, be sure to download the 83-b election form provided by Carta and file with the IRS within 30 days of exercise. Send a copy of the signed and dated election form to stockadmin@gitlab.com. The Stock Plan Administrator will file it within Bamboo/HR.
See on Carta: What and where is my 83(b) form? or download the 83-b election form template
You will most likely want to include the following letter when sending in the 83-b election to the IRS:
<<Date Filed>>
Department of the Treasury
<<Address provided from Carta 83-b instructions>>
To whom it may concern:
Please find enclosed two copies of the 83-b election in connection with my purchase of shares of GitLab Inc. common stock. Please return one copy stamped as received to my attention in the enclosed self addressed stamped envelope.
Yours Truly,
//signature
Generally, the exercise price for options granted under the 2015 Equity Plan will be at the fair market value of such common stock at the date of grant. In short, “fair market value” is the price that a reasonable person could be expected to pay for the common stock, but because GitLab is not “public” (listed on a large stock exchange), the Board is responsible for determining the fair market value. In order to assist the Board, the company retains outside advisors to undertake something called a “409A valuation”. In general, the lower a valuation for the shares the better for employees as there is more opportunity for gain. Additionally, a lower exercise price reduces the cash required to exercise the shares and establish a holding period which can have tax advantages in some countries. We describe those in this document but as always check with your financial or tax advisor before taking any action.
| Time Period | 409a | Most Recent Preferred |
|---|---|---|
| August 31, 2015 to | $0.07 | $0.36 |
| September 13, 2016 to | $0.28 | $0.95 |
| October 27, 2017 to | $0.65 | $1.79 |
| September 30, 2018 to | $4.12 | $8.76 |
| September 30, 2019 to | $8.90 | $18.63 |
| March 5, 2020 to | $11.06 | $18.63 |
| May 1, 2020 to | $9.06 | $18.63 |
| September 9, 2020 to | $9.99 | $18.63 |
| December 1, 2020 to | $16.71 | $40.00 |
| March 1, 2021 to | $17.82 | $40.00 |
Tax law is complex and you should consult a tax attorney or other tax advisor who is familiar with startup stock options before making any decisions. Please go to the tax team's stock options page for more information on taxation of stock options.
Taxation from the US perspective is not as straightforward as you might like. You aren’t taxed when you exercise your options. Tax is due on the gain or profit you make when you sell the stock. Depending on your holding period, the tax may be treated as ordinary income or capital gain. Moreover, when you hold the options long enough you may be subject to 0% capital gains tax. To outline the five possibilities of the different scenarios that may apply:
Please note, however, that any gain upon exercise of an ISO (difference between the exercise price and fair market value at date of exercise), even if you do not sell the shares, may be counted as a "tax preference" towards the Alternative Minimum Tax limit. For instance, under scenario 1 above you have to make an adjustment in your tax return for the Alternative Minimum Tax (AMT) that equals the so-called bargain element. Each scenario has a different tax treatment, so be careful of the tax consequences when you exercise your options. In the long term, holding onto your stock does save taxes, however be aware of the AMT that you will be confronted with. It is strongly advised that you contact a tax advisor to be aware of the US tax consequences.
In addition to the benefits of a longer holding period, the IRS does have an additional benefit for holders of Qualified Small Business Stock (QSBS for short). GitLab meets the criteria for QSBS treatment for options exercised prior to August, 2018, however (again), the Company is not in a position to offer tax or legal advice nor does it make any representation about compliance with the QSBS provisions, so check with your own tax and financial advisors. We found this article helpful in describing the QSBS program in greater detail.
For non-employees of GitLab that have been granted stock options, their stock options are treated as NSOs. NSOs have different tax treatments depending on whether they are actively traded on an established market:
Since GitLab's stock options are not actively traded on an established market, the NSO is taxed at exercise. The gain of the exercise (fair market value minus the exercise price) has to be reported by form 1099-MISC (box 7). Withholding is typically not required, however when the service provider fails to provide a valued tax identification number in form 1099, GitLab has to ensure backup withholding (roughly 25%).
For our employees based in the Netherlands, Germany and Australia, the difference between the exercise price and the fair market value is considered taxable at the date you exercise your stock options. With respect to reporting taxes: the taxable gains are subject to employer tax withholding. The tax payable is therefore deducted from your gross payroll with respect to the exercise of your stock options.
In the United Kingdom there is a small difference in the tax treatment of exercising your stock options as opposed to the other entities; the difference between the fair market value and the exercise price is taxed through payroll at the date of exercise if there is a liquid market for the stock at time of exercise. If there is no liquid market, income tax will likely still be due but the team member will need to settle this directly with HMRC. For more information please check our memo on this.
Often companies will create multiple classes of stock, with each class having different voting rights, in order to provide protection to the company's founders, early investors, and early employees, whose long-term vision for the company may not align with that of later stage investors. At the GitLab Board of Directors meeting held on January 31, 2019, the Board approved the creation of such a dual-class structure.
| Type | Detail |
|---|---|
| Class A Common Stock | 1 vote per share |
| Class B Common Stock | 10 votes per share |
Step 1: Before being a Publicly Traded Company
Step 2: When Going Public
Step 3: Being Public
The stock structure will automatically convert and become a single-class structure upon (whichever comes first):
On January 31, 2019 the Board of Directors approved the amendment to the company's bylaws regarding the transfer of shares of Common Stock. Effective as of that date, Stockholders will not be able transfer, sell, or assign any shares of Common Stock without the prior written consent of the Board. This restriction does not apply to the following permitted transfers:
Everyone is always welcome to ask our CFO any questions they have about their options, GitLab’s fundraising, or anything else related to equity at GitLab. However, everyone should also consult a lawyer before making important financial decisions, especially regarding their equity because there are complex legal and tax requirements that may apply.
Our team member Drew Blessing wrote about what he learned about stock options after starting to research them because he received them when joining us. His article is greatly appreciated, but any advice is his own, and it is not officially endorsed by GitLab Inc.
Each quarter before the board meeting, the Total Rewards Analyst will run a report for the CFO outlining the options pending approval. The process should be:
Job Grade (Promotion) Audit
Previous Board Meeting Audit
The number of award transactions processed in Carta over a quarter. This is measured on the last calendar day of the quarter. The target has not been determined.
The number of participants supported is measured on the last day of the calendar month.
You can test your knowledge on our equity by taking the GitLab Equity Knowledge Assessment.
If you have questions about equity or the content in the Knowledge Assessment, please reach out to the Total Rewards team. If the quiz is not working or you have not received your certificate after passing the Knowledge Assessment, please reach out to the Learning & Development team at learning@gitlab.com.
