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Comment by bitcharmer | Hacker News Reader

Sadly, going for equity in these scenarios is a mine field and almost never as profitable as advertised by the employer.

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I could not disagree more. Public companies will give you $X amount in stock. In writing. With specific vesting periods, etc. Obviously if the stock goes up or down so does your pay. But there’s no real way for companies to game this against you.

Nearly Every highly paid SWE in the US takes a significant amount of their pay in equity. As an anecdote - I take around 70% of my pay as equity and so does everyone I work with.

Public companies will sometimes tell you $X amount of stock and not tell you the number of shares, which is what actually matters. For the purposes of the offer, the dont generally use today’s market price as their price per share. In those cases, you can actually end up with less than is offered.

And in pre-IPO companies that’s the norm, but that’s beside the point.

Every grant I received had exactly how the number of shares would be calculated. Typically a trailing 10 day average as of the closing on a specific date.

Same, but I have friends who have gotten royally screwed on this :(

And friends who have gotten lucky when a dip happens right around conversion time.

They will always tell you $X in stock, how else would they value it? But there will be a set date on which that $ amount converts to a number of shares, which then vest over time according to a schedule.

I have never seen an offer from a public company that has a # of shares attached to it. Only a dollar amount. Then it converts based on market value at conversion time.

Work at a FAANG - received a specified number of unvested shares with my offer, and a fixed vesting schedule.

Don’t know why this is being downvoted, this happened to me. Company IPOd and didn’t really know what to value their stock at yet because it was so volatile so they offered me $x with the exact number to be deterred after a few months

Getting $100k sticker price worth of stocks per year is worth about $100k a year. If stocks go up they are worth more, otherwise less. On average they will be worth more than cash, and for a big company it is rare for them to go down a lot, so I'd say that getting the $100k worth of stocks a year is at least as good as just getting the cash.

Edit: Not sure why people think otherwise. Maybe they are used to companies where you have to pay money to get those stocks? Big companies gives them to you for free, there is no exercise cost.

3 years receiving vested stocks. If price stayed the same, it would be worth 200k. Today it is worth 80k. So no, thanks. Stocks are not worth unless you're FAANG

The stocks vest progressively. You don’t literally have to wait 3 years to cash out.

If you can’t afford a single but if variance then I guess RSUs won’t make you happy. But for everyone else they work just fine (unless your company goes down in flames, in which case you have bigger problems and are probably job searching anyway)

Incredibly untrue. I’m sorry that your particular company saw a 60% decrease in stock price over 3 years. But this is not the norm for any reasonably healthy company.

Fully concur. I recieved stock appreciation rights (SARs) as a bonus at one company for a few years. CEO drove company into the ground that effectively wiped out all of these SARs. I was bitter at the CEO for making stupid decisions, but not at the fact that my bonus was in the form of SARs. If I'd have stuck to my guns more, the company would have probably succeeded and the SARs could have had significant value.

Bottom line, with stock payment, you have a say in their ultimate value. Do good work, company value invreases, you enrich yourself.

It's hard to believe that your lack of contribution tipped the scales so the company failed. Doing good work, in itself, doesn't increase the value of the company.

In small companies, the ability to influence the CEO against poor decisions can make a massive difference

I think many people on HN may be too young to remember the early 2000s, when you’d kill someone for your stock price to be down only 60% over 3 years, but it absolutely happens to good companies too.

I thought I was going to be rich with my first job at a startup out of college but the dot com bust basically made it all worthless. Stock is great but cash would have been better.

What would you have done with the cash? Hold it? That’s how the poor stay poor.

It happened 1 year in 20, after an incredible run up, and good companies recovered.

We can talk about normal expectations without having to explicitly state that black swan events can happen. If you took a stance of “I’m not going to take any pay in equity because I saw what happened in 2001” you would have left millions of dollars on the table over the last 20 years.

I think that once you start looking for hard evidence on software company stocks, you're in for a learning experience.

? I’ve been in this industry for…a while. I watched people around me packing up their cubicles in 2001. What is it that you think I am missing? Genuine question because I’m not sure how to interpret your comment at all. Tech stocks have had strong growth as a sector for about 2 decades. Even if they hadn’t, even if they had been flat for 20 years, companies are still paying out $100k+ a year in equity (in addition to base salary).

Stocks underperforming cash for three years is hardly a black swan event; it happens in about a fifth of 3-year periods.

Underperforming cash is very different than underperforming cash by 60%.

I’m clearly talking about the early 00 market crash as the black swan. Some depreciation is expected to happen sometimes. Obviously.

You aren't guaranteed your salary either though and in many of those cases in the 2000's workers were laid off. Being paid entirely in cash salary doesn't make you immune to market turbulence.

In reality, most stocks decline. You know this from VCs hitting 10x semi-frequently and still losing money.

Statistically speaking, they're correct.

This is literally the opposite of reality. The private/VC market is not relevant here. We’re strictly talking about publicly traded companies.

No this is actually true. Most stocks do go down (or at least only match much less risky investments like short-term bonds), but the stock market goes up because some stocks go up a lot. This is why all investors diversify. For example, the Russel 3000 Index goes up ~10% a year because they remove bad stocks and replace them with ones that seem better. But, employment at a single company with stock-based compensation is a concentrated bet on that single stock during the employment timeframe.

Recently learned this from the excellent and very pithy Michael Batnick blog https://theirrelevantinvestor.com/2020/09/10/most-stocks-suc... who was citing https://wpcarey.asu.edu/department-finance/faculty-research/...

I agree the stock market has positive skew but in your career you will have enough bets to smooth out the effects of betting on a single stock. Additionally, you're not really making the same bet as an equity investor because your bet has optionality. Your downside is capped at less than a year in loss earnings because if the stock goes down and the company cannot bring you back up to market rate you just switch companies. If the stock goes up, you enjoy 4 years of above market compensation before getting reset to market rate.

I've never been in the situation of a significantly down price over more than a year. Is it normal that the firm will give 'refreshers' to get back to the target comp in that case?

Classic survivorship bias

/shrug. The vast, VAST majority of public companies do not lose 60% of their value in 3 years. I guess that’s just me surviving though.

If the stocks go down before they vest you can just leave for another company and reset your compensation to the normal level, it isn't like the contract says you have to stay.

If you keep the stocks after they vest then that is your fault for keeping them instead of selling them.

I don't think you realize how wrong you are. Many average, boring tech companies pay RSUs big style. Not FAANG big but they're worth crazy amounts.

> at least as good as getting cash

This claim is patently false. If you receive $100k in cash, you can immediately exchange that to $100k in public company stock. The opposite is not true (if you receive stock with a vesting period, you cannot immediately exchange it to cash). Therefore, getting cash is at least as good as getting public company stock, not the other way around.

When you get an offer of $100K cash + $100K in stock, that's before appreciation. So 3 years from now your equity is appreciated but your cash is not, so you get $225K in cash equivalent.

This is false. If you immediately exchanged your cash to stock (as I specified in the post that you are replying to) then 3 years from now your "cash" option is worth exactly the same as your "cash + stock" option.

This is wrong. It would be true if you received all the cash in a lump sum as soon as you're hired, and you used it to buy stock, but if your cash "vests" in the same way as equity typically does then you'd lose out on the opportunity for it to appreciate before vesting like shares can.

No one is giving you 4 years of paychecks on day 1. But they do grant 4 years of equity that is appreciating while you’re waiting for it to vest. That’s the difference. Cash is worse.

If it's about timeframes it can be thought of as like a year end bonus being paid out when it vests. With some risks in terms of share price (which is like variable cash bonuses). The only reason most prefer cash is because it's a hard number that base increases/bonus are computed by and for negotiation in next job.

Please explain to me how you can't achieve your desired stock exposure by receiving cash and then buying stock on the public market with that cash?

Kind of irrelevant because you will likely never receive a cash comp package equivalent to your salary + RSU amount. If it were that simple, virtually everyone would take the cash.

This entire thread is discussing the hypothetical where you could exchange your stock comp to cash. People upthread were claiming that the stock is more valuable, even though cash is exchangeable to stock without limitations, and the opposite is not true. You yourself said "virtually everyone would take the cash", so I take it that you agree with me.

I think you misunderstood, it's not that stock is more valuable, it's that you should opt to cash+stock because the total value of this will be higher than a pure cash offer. Essentially, cash and public stock is the same to an emplloyee, but for companies, paying in stock is better for them.

Let's say you know you will get a bonus that pays out end next year worth 10k. You can chose to receive 10k cash or 10k of google shares at today's prices. Most would trade the risk for potential upside.

As soon as your RSU vests, you can sell it for cash. Most companies offer an auto-sell option that works even during restricted windows. With a good vesting schedule, it's almost identical.

Sure, almost identical, but in the direction where cash is always AT LEAST AS GOOD as stock. Not in the other direction.

It’s not at least as good as stock, it’s worse in most markets. Because your stock is appreciating before you’re allowed to sell it but the cash is depreciating to inflation.

If you receive $100k worth of stock, you receive $100k worth of stock. If you receive X amount of stock that vests in 1 year, and at that time point it happens to be worth $150k, then you didn't receive $100k worth of stock, you received $150k worth of stock. The question wasn't about comparing $150k worth of stock to $100k cash, the question was about comparing $100k worth of stock to $100k cash.

Every company I know of with the exception of Stripe and Coinbase have 4 year equity grants. In the real world you'd receive a 400k a grant that vests over 4 years. For most white collar workers who don't need the money to pay bills the 400k grant is worth more than an extra 100k a year in salary.

It's a free call option on the stock. If it goes up you keep vesting at the new stock price which might be way above market rate for you position and if it goes down you get refreshers at the end of the year to bring you back to a market rate salary.

You're completely wrong because of your neglect to consider pre-vesting appreciation. Please see my previous comment for an example. Why do you think some people get rich joining pre-IPO companies? Because they're granted a lot of shares at a low price point, and by the time they are vested and liquid the shares have a possibility of being worth magnitudes more than when they were granted.

Are the tax implications the same?

You’re taxed on the stock value as W2 income at vesting time. So more or less, yes.

At least at Google, you get vested shares every month, and you start receiving them in about the 3rd month.

You can also have your broker automatically sell.

It is pretty close to cash.

> It is pretty close to cash.

Sure, but specifically in the direction where cash is always at least as good as stock, not in the other direction.

You've stated this in something like 5 threads in this post, and you're wrong in every one of them. Please see my previous posts with examples.

Want to know how I know? Because I'm working at my 3rd company where my 6-figure stock grant is vesting at 7-figures due to appreciation.

You're missing the most important benefit: pre-vesting appreciation.

Say you are granted $600k that vests over 4 years. Well lucky you, the stock has 1.5x after year 1, doubled at year 2 and tripled by year 3! That means you've cumulatively vested $225k at year 1, $525k at year 2, and $975k at year 3. If you had cash only compensation, you would have received a total of $450k for that same time period.

I feel like this is the most illuminating comment in this thread, so, thank you.

That said, if I can choose between receiving $600k in cash today, and receiving $600k worth of public company stock today with restrictions on when I can sell it, then I will choose the cash, because it is worth AT LEAST AS MUCH as the public company stock (because, again, cash is freely exchangeable to public company stock without restrictions, and the opposite does not hold true in this hypothetical).

If you feel that there's a good chance that the stock of the company you're working for is going to tank, take that as a sign that you should work somewhere else ;)

> If you feel that there's a good chance that the stock of the company you're working for is going to tank, take that as a sign that you should work somewhere else ;)

If you get $600k in cash, and you immediately exchange that into $600k in company stock (with no restrictions on when you can sell that stock), how could that possibly be a worse deal than getting $600k in company stock with restrictions on when you can sell?

Seems like a strawman, as no company is giving you the cash as a lump sum payment like that up front. Even if you get the option, which mostly you don't, it's between:

1. A grant at $Xk, converted to shares on start date and vesting proportionally over 4 years

or...

2. A salary bump equivalent to the grant in (1), paid out ~bi-weekly at (1/104)*$Xk. 104 being the amount of bi-weekly pay periods to occur over a 4 year span.

It's not a strawman, it's a direct response to grandparent comment in this thread, who said:

> getting the $100k worth of stocks a year is at least as good as just getting the cash

I am arguing that getting $100k worth of cash is always at least as good as getting $100k worth of stocks. You're saying that it's not realistic to have the option to get cash instead of stocks, and that's true but it's besides the point.

>Not sure why people think otherwise.

Because stock compensation can be vastly different experiences therefor not just as good as getting cash.

It’s weird to say this though. Because stock comp is purely additive in almost all cases. The amount it adds to your pay is variable, and in extreme circumstances can even be $0. But it’s not like you can really lose money because of equity based pay, under normal circumstances.

You could be compelled to accept a lower salary with the expectations of stock being worth lots of money then it actually (as is the usual case) ends up being less than salary would have.

I mean this scenario only happens at just about every startup if you read peoples experiences though I don't know if there are or if its possible to have a study done on this since the data is likely private.

You seem to be confusing RSUs typically issued by public companies as part of total compensation with options used by private companies, which often amount to nothing.

Like everyone else is saying, you want publicly traded equity - Amazon, Google, Shopify, etc that you can convert to cash, usually in the first year or three. Not the lottery tickets that startups hand out.

RSUs are almost the same as a regular paycheck, and in my experience the employer has a lot more flexibility to meet your demands when you're negotiating total comp. So yes, the stock could go down, but you're getting more when you start than you would in salary and if doesn't go down you pocket the upside.

The vesting schedule is where you need to be careful.

The trick with equity isn't about making it big at IPO. That rarely happens for most. Go to an established company that does stock RSUs and if you prove your worth the the RSUs will follow. They can be worth a lot from established "boring" companies.

Can we make an example of those "boring" companies?

You want to “have” an example. “Make an example of” means to punish.

Adobe, Oracle, Salesforce, IBM, SAP etc... You also have the arguably less boring but equally stable and more lucrative options like Google, Facebook, Amazon, Apple.

the only scheme i've seen in post ipo equity (rsu-s) is that you are given a cash amount that is converted to shares at current price, then the shares vest over time. If the shares go up you get more cash. Assuming an average company (ie tracking the total market) and an average return this is going to be better than cash.

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