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Comment by patio11 | Hacker News Reader

This plan conjures an image of accountant given a copy of the PHP manual and the instruction to write a login form. He may do it the right way... but I'd be a wee bit scared.

Prior to implementing something like this at your own company, I'd ring your friendly neighborhood tax accountant and make sure you didn't just create a taxable event for all employees. Much like writing a login form, I think there are a lot of very subtle infelicities in implementations which have very serious consequences.

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We had the plan vetted by lawyers and accountants. It's a taxable event should it trigger, but by then you have money to pay the taxes. It's not taxable at its implementation.

I know you guys have competent professional advice, but I was a little worried about a scenario where somebody a little less tax accountant-y copy/pastes the entire plan except for that bit about excluding former employees. Boom! It totally didn't look like a SQL injection but it was important anyhow!

Equity compensation schemes are like programming language manuals and spellbooks of eldritch power: every word in here can kill you.

The bonus would, however, be taxed as income and not as capital gains. That's kind of a bummer.

Indeed. In a large exit, this could more-than-halve what employees net, moving the proceeds from a 15-20% long-term capital-gains rate up to a 35-40% regular-income rate.

But this is a true bonus, since employees are compensated fully in their paychecks, unlike options that typically replace some amount of salary.

How is 60-65% less than half of 80-85% ?

If it is taxed as W2 income, you also need to pay social security and medicare, another 7.65%. State taxes may also differ, if the state has a separate capital gains rate. Also, the max federal capital gains rate is 15% as far as I know.

Yes, I mispoke, and should have said 'more-than-double what they pay in taxes', rather than talking about the net.

In a max-tax scenario (high-tax state like California, expiration of the Bush tax cuts in 2013), the bulk of a large exit would be taxed at about 53% if ordinary income, but only about 33% if long-term capital gains treatment can be obtained. So they'd be netting about 30% less due to the 'bonus' approach rather than equity.

(I'm counting medicare tax, which no longer phases out any income, but not social security, which isn't collected on income over ~$107K.)

Same as non-qualifed employee stock options in that regard.

Very interesting employee "benefit." I wonder if it would be considered as an employee benefit subject to reporting requirements / oversight by the U.S. Department of Labor or other federal agency?

They just reinvented the RSUs without the S part.

Since RSUs are generally treated as shares, employees have a slight idea of what kind of piece they're getting. With this setup, "At least 5% of the ultimate sale price" could be anywhere from 5% to 100%.

Could you explain why a public company would issue RSUs instead of restricted stock?

They wouldn't be public, right? Hence all the liquidation event talk.

That was my first thought. That they might end up creating something that already has an existing name and existing requirements. From the employee's point of view, as long as it comes across as regular taxable income with proper withholdings taken out, it is probably safe.

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