Compensation as a Reflection of Values | Hacker News Reader

Compensation as a Reflection of Values

dtrace.org

108 pointslwhsiao75 comments

I think the overall sentiment is right for an early stage company: you don’t want any employees (including the founders!), worrying about covering their expenses.

Personally, however, I would be more fluid than “constant dollars”. Some people need more cash, and others need less. There are definitely people who would say “I basically don’t want any cash, just get me health insurance and more lottery tickets” while others would say “Look, I would love to do this, but my family needs take home pay above this level”.

Letting employees trade off equity versus cash comp at their discretion via a formula seems fair to me. Anyone who reduces their salary is effectively reducing the amount of money needed for fundraising or time to needing funding (and vice versa, for more cash). For that reason, the trade off is also non-linear for the company: early dollars are worth a lot more than later dollars (though the price per share sort of reflects this). Said another way: if you had a $175k baseline salary, but let all employees also exchange $$s-for-shares at the current valuation up to some limit, you should probably do it! (Large company ESPPs are sort of this). Doing this exchange ahead of time is just more tax efficient than “first we pay you cash, then you buy shares from the company”.

> equity versus cash comp

For me, the main tradeoff is not compensation, but time. I'm prepared to trade away compensation for fewer hours.

But if I want to work a maximum of 32 hours instead of 40, then I essentially have to rule out most of the jobs I would otherwise apply for. It's not a criteria where most employers offer flexibility.

This is something I've wanted to do for a while, and I've had success with it. At my previous employer, I did in fact work 32 hours per week, and it was great.

When I left there (for reasons), this was something I discussed with all three places that made me an offer. IIRC, one offered me 32 hours a week, another 32 (I think), and the third 36. I ended up accepting the 36 because it seemed like the biggest challenge for me.

I brought up my desire to work < 40 hours a week as early as possible with places I interviewed, and some just said "no way", which ended the interview process quickly.

For context, I'd been in software dev about 18 years when I was going through my last set of interviews.

Anyway, I'm just responding to say that it's possible to find places willing to do this, though obviously the more desirable you are as a candidate the more likely you are to find an employer willing to go for this.

The other alternative is to try to build up a consulting practice, and to simply not take on that much work. But this is a lot more stressful from a financial security perspective, having done this for a bit myself many years ago.

Thank you for doing this.Experienced folks leveraging their talent to get a deal like this makes it easier for the rest of us who may not have as much leverage. I would love to see a sane work week normalized.

It's certainly becoming more popular every year. I have friends that do a 50/50 job share, other friends that simply take an extra 2 months unpaid leave every year, and quite a few friends who only work 4 days a week (and get 4/5th pay).

I pitched my boss that I would get all my work done AND it would be good for him because it would help him meet budget AND build resiliency in the team (They have to deal with outages without me - so I created more documentation around that). After lots and lots of back and forth my boss eventually accepted, and I never worked more than 4 days a week again, and most weeks it was only 3 days.

Keep pushing for it, and find a company/boss who is open to the idea. Fire your current one if they're not willing to negotiate.

Solid advice! With some persistence (and a strong résumé), I was able to secure a 32-hour position a few years ago. Like most jobs, I found it through networking (a Papers We Love Meetup). But all good things come to an end and I'm looking again.

The main issue is a lack of institutional support:

• While there are a decent number of potential employers who would be open to 32-hour-full-time, there's not a good way to reach them. RIP 30hourjobs.com I'm afraid.

• Recruiters are completely baffled by the idea that "full-time" doesn't necessarily mean 40 hours, even if the IRS determination is minimum 30/week or 130/month: https://www.irs.gov/affordable-care-act/employers/identifyin...

• Many companies simply don't have the HR flexibility to handle anything other than 40-hour full-time cogs. (I think this may be different in parts of Europe, where I understand there are laws that allow employees to choose to work fewer hours, so companies have to find a way to accommodate them.)

Do you then get paid the same hourly rate, but just fewer hours? I like this idea, but I also know that there is an upfront cost of staying in the loop that is about the same no matter if you end up contributing 1 hour per week or 80. So maybe 32 hour people get slightly less per hour than 40, all else equal? Curious how people already doing this handle this.

It's probably the opposite - the marginal value of the work done from 32 to 40 hours is a lot lower than the first 32. In fact I doubt most organisations would be able to distinguish between the output of someone working 32 vs 40 hours. Instead of trying to measure though it seems fairer to just keep a straight hourly rate no matter how many hours you work.

Personally, part of my extracurricular time is occupied with activities which actually make me more valuable, such as open source work, organizing study groups, and presenting at meetups.

But I also have family obligations that I cannot set aside, and I can't do all of these things without burning myself out. Fortunately I am in a position where I can afford to sacrifice some compensation — and that's what I choose to do.

So even setting aside your point about the marginal value of the last 8 hours (which rings true), in my case there is definitely no question about the value of each hour.

Agree with you on this. We do that at my company Divvy. Each prospective hire is given 3 different options (varying levels of cash / equity). The "implied" value of all three at the current valuation is the same, but as you mention some people prefer more equity upside and some prefer more cash in hand.

But why not give everyone cash consistently and then allow them to buy equity as they desire, when they desire, by reinvesting in the business at the current prevailing rate?

As even Homer Simpson figured out "Money can be exchanged for goods and services."

There typically is no "prevailing rate" for a startup. So just figuring out the tax implications is too much work to do it like this. Also, usually you're giving people options rather than equity; you can afford to give people larger option grants because of vesting than you could afford to sell them equity.

Interesting thought. We're a private company, so the stock is still illiquid. That wouldn't prevent purchasing stock, but the question is where it would come from. Option pools are used for new employee grants so that could work, but when that runs out you need to typically create additional shares and dilute the other holders. Will put a little more thought into this.

Isn't there a tax implication? Tax is one reason part why people choose non-monetary remuneration. I'm not American, but my guess is in all jurisdictions that tax would vary based on the type of non-monetary remuneration.

I'm not aware of any tax advantages of equity compensation in the US versus cash compensation. If anything, it could be a liability in the case that it's not actively traded, or if you trigger AMT and aren't able to sell the stock to pay the taxes.

The type of compensation that comes with tax benefits is things such as subsidized health insurance, 401k retirement savings, commuter benefits, dependent care expenses, tuition, etc. That type of stuff is basically non taxed income.

ISOs with an 83(b) election (and then “hit”) are much more valuable than W-2 income from a tax perspective. (Whether that W-2 income is cash salary or RSUs.)

In the current tax code. Wouldn’t some of the proposals to consider more capital gains as income change that?

But that comes with the risk of over paying taxes, so not exactly comparable to cash compensation.

If you get lucky and your options both appreciate and become liquid, this windfall is taxed at long term capital gains rates.

That depends on the facts and circumstances. If they become liquid and valuable before you exercise them, you’re taxed as wages or short-term capital gains rates on those gains.

I’m no expert but I thought the worst case was AMT, which taxes the bargain element when you exercise an option (rather than when you sell the received shares and recognize the gain). Are you talking about a tax on granted options, or when options are in the money but you haven’t exercised yet?

There is no tax due on unexercised options (which is not what I meant to imply above, but I left it ambiguous).

If you have non-qualified stock options (NQSOs), on the day you exercise, the difference between the strike price and the fair market price is taxed as ordinary income. That's what I was talking about.

If you have Incentive Stock Options (ISOs), the tax treatment can be more favorable if you follow certain rules, primarily that you have to sell the shares no earlier than two years after the option grant AND one year after you exercise them. The AMT calculation comes into play between the exercise and sale.

Basically, figure out exactly what you have, as the type of instrument you have changes the taxation, and read the tax laws on that. This is not tax advice.

I guess it would depend how you structure the purchases. If you allow for the purchasing of a common share at the 409 valuation, you wouldn't have a tax hit until you sell it. You would be taxed on the salary used to purchase the share, however.

One issue here is insider trading. Not necessarily in a breaking-the-law sense, but people who work at a startup may have a better and more up to date sense of how things are going than whoever performed the last valuation.

This 3-tier presentation is used at a couple places and would caution it as a way to anchor you on salary and equity. A lot of hires will negotiate the “salary high” and “equity high” option, saying they want no sacrifices, get both and join thinking they got a great deal.

Interesting. I wonder how this plays out in practice - what choices people tend to make.

I wonder if there are politics for people who take more cash and less stock - does mgmt assume it implies less good will, since the employee is literally “less invested” in the outcome?

Can only speak to my experience, but I am completely indifferent to their choice. Either of the 3 tend to be relatively substantial in equity, so everyone is invested in some regard. I also believe that in the long run, unvested options aren't the best retention strategy and that a challenging and rewarding work environment coupled with competitive compensation is the way to build an invested team.

Awesome! Any lessons learned? (The main one I’ve seen and worried about is sophistication of employees with their equity. Options are confusing! But that’s true whether it’s a single offer or multiple perspectives).

In general, it seems to be appreciated. We initially set it up this way to help take some of the stress out of negotiation (as that favors certain people over others). A few learnings off the top of my mind:

1. Regardless of the structure, the offer needs to be competitive. This wouldn't really help with lowballing offers.

2. Across the ~30 offers I've given out, I don't think that either of the 3 variants is more common. I suppose that indicates that different candidates are indeed optimizing for different situations.

3. Our hiring has intentionally skewed more senior and I think the variants of offers has helped create more family friendly offers.

Regarding options, I tend to make sure to offer to spend a good bit of time laying out the details of how they work (strike price, preferred value, vesting, cliffs, early exercise, etc.). They are indeed confusing and I find that people typically either overvalue the value of the options today, or undervalue the potential upside.

How much do you space out the three variants? Have you gone beyond the endpoints? (But followed the same curve)

Depends on the role/level, but ~10-15k annually between each tier. I have gone beyond the endpoints (within reason) by just linearly extrapolating, though that tends to be pretty uncommon.

Wow. That's an absolutely fantastic way to do this.

There are companies that do this, like Brex.

> Letting employees trade off equity versus cash comp at their discretion via a formula seems fair to me

It's an incredibly unfair way to compensate.

If you've come from a less privileged background you don't have family support, likely won't inherit anything, probably don't own a house. Your priorities will be to shore up some basics in the short term, like breaking a hand to mouth existence or possibly working towards a mortgage.

But focusing on your needs, due to the lack of wealth in your family and history, means that you must give up hope of future wealth, foregoing the same value and benefit that those who can afford through their privilege to take... Far more share options, the lottery tickets.

I find the idea so repulsive that when I was offered roles twice at Monzo I refused both purely because of this.

If it isn't already an unequal workplace that is biased towards those who started out with more then this guarantees it will become that. The only people who benefit from this are those that started with the privilege of wealth... Likely the white middle class male.

I don’t quite follow... rich people and poor people have different needs, sure, but why is it bad to give people options that help meet whatever their needs are?

Do you have a better suggestion?

> why is it bad to give people options that help meet whatever their needs are?

Because it perpetuates and worsens inequalities.

The rich are effectively paid to their value whereas as you admit the poor are paid to their needs.

>we pay people based on their work

No, companies pay based on the supply/demand economics of the particular job and the individual. The work done merely sets a maximum that the company is willing to pay and still get a profit out of the deal. How much you get offered below that is set by the market. The place you live impacts the market of jobs available to you.

Depends on company stage. If you are growing a startup, you pay for their contribution to high growth.

If you are a profitable low growing company, sure, you're optimizing for cost reduction, and not upside.

The economics of each stage are very different, as in you burn more fuel on the runway getting into the air than at cruising altitude, or to get off the launchpad and to escape velocity.

In the end every company does a supply/demand calculation versus a candidates other opportunities (real and potential). After all, if you can get someone for $150k why would you pay $250k? Sure, some may pay more for a faster hiring or to offset risk or whatever but in the end it's built on top of supply/demand. The theoretical maximum a company could afford to pay is academic since no one offers close to that unless supply/demand forces it. And if the supply/demand goes over the theoretical maximum then the role is outsourced or strategy is adjusted to not need it or some such.

If I offer a 50%-75% raise for a role, I'm going to attract the very best talent for it, people who will leave their current roles for the one I'm offering. Supply and demand exist for a specific good, and 1x vs. a 5x or 10x talent aren't comparable goods. This is why I like the flat salary with variable equity model. The incentives are almost beautiful.

If the role I'm looking to fill can be filled by cheaper people whose work I'm indifferent to, I should just be outsourcing it because they aren't delivering anything above the transaction, and they won't be be assets to growing a company.

This feels more practical rather than ideological, which I intend as a compliment. Small team, get people focused, pay enough to not worry about personal financial stress, and let equity act as the primary reward system.

> ...pay enough to not worry about personal financial stress, and let equity act as the primary reward system.

It's kinda weird that some become billionaires while others struggle.

I support generous profit sharing. Equity, bonuses, dividends, and even compensation. Whatever works.

How generous? Working towards a Gini coefficient in the 0.25 - 0.3 range is a good start. Enough head room for over achievers, without leaving anyone in the dust.

For comparison it looks like US gini coefficient was about 0.48 in 2019.

There was good discussion when this came out.

https://news.ycombinator.com/item?id=26348836

As a side effect, I imagine that this will lead to a very high hiring bar.

Without the ability & incentive to hire someone "junior," every interviewer will compare the new hire to their inflated view of themselves.

I’ve worked at two startups where some variation of the interviewer defining the bar by comparing themselves to candidate occurred. In both cases, it had negative effects on team culture and company dysfunction

I guess it depends on the person. The author mentions this isn’t a strategy applicable outside the realm of startups. Having worked in that environment, you’re often looking to hire whoever competent you can find to help with the immense backlog you would naturally have.

I cringe every time I read startups proudly writing about their unique compensation philosophies.

Almost without exception, they have to end up changing it and ending up with typical corporate structures. Because there is a reason for them. Because all employees are not equal. Because some people put in much more work than others.

Would be a huge red flag for me, it's typically a special type of arrogance leading people to believe it's not enough to build something new, they also are special enough to re-invent the wheel on every organizational aspect.

In a sense I suspect there is a deep immaturity: Not wanting to deal with the realities of having to treat people differently, of struggling to figure out how to reward high performers, how to allocate finite resources. This is then justified in hindsight by coming up with some nonsense like:

'Some will say that this doesn’t offer a career ladder. Uniform compensation causes us to ask some deeper questions: namely, what is a career ladder, anyway? To me, the true objective for all of us should be to always be taking on new challenges — to be unafraid to learn and develop.'

This literally does not mean anything. It's just handwaving around not wanting to deal with employee issues. Stay way.

Sounds good; doubt that policy would fit everywhere but that is a lovely expression of the notion.

I wonder how many contractors and consultants this business will be using and how it can extend this attitude to their work? "Day rate salary"?

> Companies spin this by explaining they are merely paying people based on their cost of living, but this is absurd: do we increase someone’s salary when their spouse loses their job or when their kid goes to college?

Good to have this pointed out again!

Companies pay different amounts based on the location due to market price differences for software developers not because of differences in cost of living.

If you relocate to Zurich or Vancouver from SF, highly likely most companies that re-adjust salaries will decrease your salary even though cost of living is pretty high in both of those places.

I think one of the clearest examples of this is London, where tech salaries are 20-30% lower than SF despite it being roughly as expensive.

My friends at Google say Zurich is a better deal that it might seem. Between lower taxes and moderately lower cost of living, your google salary goes a lot further in Zurich than it does in Mountain View.

"developers not because of differences in cost of living."

No, the primary driver of those differences is cost of living.

Vancouver is not actually a 'high cost of living' place - it's just the real estate.

It's supply and demand as well and since most people work 'local' and Van doesn't have huge and powerful software companies HQ'd there, pay will be less.

But cost of living is a primary factor.

The 'my wife is pregnant' thing isn't a fair comparison because it's an individual artifact, not general for a location.

The fact maybe a spouse is pregnant will 100% affect pay because it will affect the demand curve i.e. change the nature of someone's willingness to work at what salary.

It's one thing to whine about compensation but if engineers in Zurich or Vancouver want things to change they must vote with their feet and come to the Bay Area.

Either that or get VC funding on par with what's happening in the valley.

From Vancouver this is a fairly straightforward proposition (or as I understand it, was one pre-COVID). From Europe, it is _incredibly_ difficult to get a work visa for US. The most egregious example of the difference here is London vs San Francisco.

The cost of living is not crazily different, yet the entry level comp in SF is high senior level for most technical jobs. However, my experience is that the Bay Area has a lot of British immigrants (I encounter a new (to me) at least weekly at the large company I work at), so perhaps people are indeed voting that way.

> From Europe, it is _incredibly_ difficult to get a work visa for US.

Maybe it's time to negotiate a better deal.

H1 is completely clogged with not so legal bodyshops, but what about simply getting an O-1?

Agreed, it probably is time for that deal to be dramatically improved.

Currently however, for a Canadian to move from Canada under a TN series visa than any of the visas available to Europeans, other than some limited cases such as diplomatic missions.

"Extraordinary individuals" only, max three years, tied to a job and an "event". Definitely not a path to living in SF. Do you know anyone who "simply" got an O-1?

Hell no! I'm a passionate software developer but no way would I move down south. Compensation is about a lot more than $.

You can live ok, and have disposable income with 120k in Kansas city, while in NYC or SF you probably have to have roommates, or live in a small cramped studio, to have the same disposable income at the end.

If a company is going to pay for you to have a good/happy living conditions, and disposable income, then adjusting some of the pay by location makes sense.

The best scenario is when they split the difference and it becomes a win win scenario.

At the end of the day a company will pay as much as the market bears for their long term retention strategy (e.g. 94% voluntary retention).

A single person will have $6700 a month after taxes on 120k in NYC. Manhattan studio rent is about $1800. That leaves almost $5000 a month in disposal income after housing, which is higher than the US median income before housing costs!

Sure rent is pricy in Manhattan relative to other places in America, but I just don't get how that type of life is depicted as such a struggle online.

It's because it's not unless you're wildly outspending your limits. Having personally done it, living in Brooklyn was fine around 90k right in Carroll Gardens a pretty nice area with a 1 bedroom. Living in Manhattan was fine at about 120k and very easy when I was making about 150k. I have high student loan debt too. I haven't lived in a non luxury type building for years now at this point and only had a flat-mate once by choice while being able to save thousands a month. The narrative of the poor struggling highly paid engineer doesn't really jive with me.

I moved to Jersey City last year to have cheaper rent but I did that because I don't care for NYC much and am migrating out in general but it wasn't like I was struggling as an individual engineer before hand.

$1800 is the very very low end for Manhattan (and likely a reflection of COVID price drops): https://streeteasy.com/studios-for-rent/manhattan

Also: there's the Manhattan people typically think of, and then the reality that it's a large island with a wide variety of housing. Most folks who aren't from NYC think don't realise that world continues past 110th st (or, let's be honest, past 86th).

Sure, but you’re trading accessibility/entertainment/<something else people value and typically accept as a given for living in Manhattan>. At a certain point, it makes more sense to leave Manhattan to one of the other boroughs, go across the river to New Jersey, or move further up to Westchester/ Long Island. Your money goes further there (housing, groceries).

My point was that looking at median rents while dreaming of Midtown or Tribeca is not a realistic way to assess the realities of living in Manhattan.

Splurge for 2.5k studio in midtown and you still have enough spare cash.

We can argue exactly what one would pay for Manhattan rent but

1. $1800 isn't that far off for studio rent, multiple listings on apartment.com show that right now

2. Most New Yorkers don't live in Manhattan anyway. I purposely overstated New Yorker's rent costs to prove my point.

You can live extremely well on 120k in Kansas City. Median household income there is only $54k. On 120k, you are very well off in KC.

Interesting read but they hand waved the scaling problems this can create. What do you do when you have to change the compensation system?

Do you lower people’s salaries or pay them less than new hires? They’re not going to like that.

Do you leave early employees in a legacy system forever? That can reinforce an in crowd/out crowd dynamic among employees which can damage team cohesion.

I like this approach a lot because it aligns people around commitment to the mission instead of being laborers. I missed where it said they do variable comp with equity on top of the flat salary, as that would be a truly a next level win-win.

I might also contract out anything below a threshold, which would make the whole thing even more efficient.

Would CEO's stop with their visionary cultural moralizing?

Why is it when people get in power they do this?

Just ask that your team has 'x,y,z as important behaviours' maybe put a few things in place to help that - get over yourselves and get to 'making'.

Paying someone more than a company can get away with is PR spin or a mistake from the shareholder perspective.

I used to consider Cantrill’s position on values to be authentic but after he supported Joyent’s discontinuation of service to Gab solely based on their commitment to freedom of speech, I think his whole “values” shtick isn’t much more than virtue signaling. I say this as someone who deeply disagrees with at least 50% of the people on Gab but nevertheless is committed to liberalism and human rights.

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