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Comment by dredmorbius | Hacker News Reader

Vesting is part of compensation. Denying part of compensation after the fact is bad look. Keep in mind that they're options, and unless exercised, and there's a liquidity event, both of which are highly uncertain, it's all funny money.

If you terminate shortly before vesting:

1. You face the prospect of an expensive and distracting wrongful termination suit.

2. You're sending a blindingly obvious signal to all other employees, and potential employees, that you can, will, and have terminated employees immediately before vesting. That may well prove ruinous if you find yourself unable to hire and/or retain talent.

Let the vest happen. Whether you separate from the employee before or after is your call, though if you've made that determination, do so.

PIPs are fugly as hell for all involved but exist for a reason. You should probably look into setting that up as a process.

Fix your recruitment, training, and monitoring processes.

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If you can't fire an employee because the vesting of their shares is "part of their compensation", what's the point of vesting at all? You should just give it to them on day 1, right? How is an executive supposed to operate if something that was promised for the fulfillment of service through a certain day becomes an entitlement any time before that agreed date? One month is too "obvious"? How about 2 months? 6 months? Where is the line when it's ok to fire someone before their vesting day but not after?

This is a great example of a line-drawing fallacy. The claim isn't wrong just because there's no universal precise line.

Also known as Sorites Paradox:

https://en.m.wikipedia.org/wiki/Sorites_paradox

Thanks for linking.

I interpreted the exchange as asking for precision when someone makes a vague statement in the context of a contract that defines things in clear terms.

In this situation, the number of grains of sand (N) to make a heap is defined! It's as if the GGP is debating whether N-1 grains can still be considered a heap regardless of the contractual definition. I think that's what the GP is getting at.

If I understand, your argument is that the GP's argument isn't invalid because they didn't pick a specific time as to when to fire someone.

I argue that the line-drawing fallacy misapplied here.

The parent's point is that there is no vagueness as to when you can revoke someone's pre-vested shares per the contractual terms in direct contrast to the GP's claim:

> Denying part of compensation after the fact is a bad look.

By asking the GP for a time, they're raising the fact that the contractual terms allow for the the firing pre-vesting at ANYTIME and the GP is making an out of contract judgment.

They started off talking about the line defined in the contract as though it applies in the relational context. The GP contends that the equivalence is inaccurate: many will view termination a day before vesting a sort of theft, i.e., the contract line is fundamentally separate from the appropriate-in-people’s-judgment line.

The response then operates from that premise, exploring the possibility of a distinct line to draw. In other words, while it is clear that there is no vagueness contractually, the response is focused on the distinct question of a line of appropriateness in the relational context.

In evaluating that possibility, it commits the line-drawing fallacy, rejecting the distinction on the fallacious grounds that there isn’t one clear answer as to where that relational line is.

> i.e., the contract line is fundamentally separate from the appropriate-in-people’s-judgment line.

You nailed it, and ultimately, I'm glad you shared this fallacy/concept.

Re-thinking my reaction, I don't think the line-drawing fallacy is constructive here and maybe in general.

Here's what happened,

1. The original comment said "Denying part of compensation after the fact is bad (sic) look."

2. Then the follow-up asked for a "standard" for what duration of time needs to pass for the decision to be regarded "bad" despite being contractually allowed.

3. Then you said "The claim [in #1] isn't wrong just because there's no universal precise line."

IMO, #2's a constructive question to ask because the answers add information about someone's position and furthers debate. The judicial system uses this all the time with "reasonable-ness" standards by specifying a fuzzy line or a "reasonable person would know it when they see it". And if #1 were to say "I don't know how many days make it good/bad," then it's not compelling reasoning and more opinion-based -- which is fine, but not very compelling because it's so vague.

It seems like a lower order fallacy to use in a debate.

I don't think a question like #2 has to be destructive, but it seems clear to me that it was here. The comment tossed out an extreme position—"You should just give it to them on day 1, right?"—and suggested that an executive couldn't even function if vesting was socially expected any time before the contract date. That's hyperbolic, and the "where is the line" question shouldn't be taken in good faith at that point.

Constructive engagement usually involves proposing answers, not just asking questions, or at least demonstrating an agreement on some underlying premises. The comment could have said "I can understand the expectation that vesting is right around the corner carries some weight. But surely there's a point where it's too far. It seems clear to me that six months in with six months to go shouldn't be a concern. If someone hasn't been there for a year, do you think two months would be socially problematic?"

Maybe it isn't compelling, due to vagueness, but what counts is the social reality—and that's often fuzzy.

I like your alternative phrasing for #2.

Thank you again for the interesting discussion.

The job of an executive is to Deal With It.

"If you can't fire an employee because the vesting of their shares..."

That isn't what I wrote.

As others have noted (and I should have considered), pro-rata vesting is another option to consider.

Why those terms aren't standard is ... along with a number of other elements of vesting ... is something I don't fully understand.

I mean the answer is that you just feel it out. 1 month is soon enough to wait, 2 months is gray area, 3 months is probably fine. And if it's a huge vest, then you give more leeway.

You're not appealing to some objective rule here. You're thinking about what would look like shitty behavior to the rest of your employees.

Firing people gracefully is a really, really important part your relationship to your employees. It's about whether people feel like they're being respected as professionals or abused like they work in a sweatshop.

I take the point of view of the employees who have been wishing that their underperforming colleague was fired already, and would rather the company not spend money (which could be theirs) on someone who's dragging down the team.

What about that scenario? Not every underperforming employee is the case that you imagine.

Come on, they know that money won't be theirs. I have never heard of a corporation saying "we'll fire this person and distribute their next vest to the rest of the team"! No, it goes into some generic pool. First priority for RSUs is usually new hires.

I can definitely see wanting someone gone. Been there. But everyone probably hopes they get a soft landing and find a job that suits them better (unless the person's a huge asshole, then maybe not)

I agree entirely -- so long as the intent is entirely performance-based and not as an attempt to short-change the employee, the employer can be justified in parting ways.

However, this entire conundrum points to a flaw in the vesting structure. The one-year cliff might be better composed of a series of smaller monthly vesting events that begin slowly at 9 months, grow to a peak at 12 months and settle down to monthly vesting at month 15.

It matters how it is perceived. If everyone involved sees a company firing a bad employee, then good. But if I were in that situation, I would see a company that decided to be greedy and did not care about the sacrifices you made for them.

I treat equity as zero cash value, but that makes it worse because the company is now clawing back something worthless!

That said, I find the whole concept of vesting cliffs to be a bit of nonsense. Vesting I can understand, but why set these cliffs when they are not explicitly tied to regularly-scheduled reviews, performance, or some other checkpoint?

The answer is that there is no point.

You as the company are always exploiting the worker, people just feel bad about being exploiting when they feel more exploited, and others will also notice.

Your job as the employer is to exploit people without them feeling exploited. It's not unfair to you in any way -- you're getting more value than youre paying for either way

Technically correct but getting rid of someone at 11 months is their mistake not the employee. They should have evaluated at 3 and 6 months. Letting go at those points and not vesting seems fair enough. The company needs to sharpen their processes. I am guessing this is a startup founded by people who have never worked for someone else as this is commonplace process to have set up 3 and 6 month reviews, PDPs, and probably a tighter hiring process is needed too.

I'm willing to give leeway to a new company. Many founders, even those from companies that have these processes, might not fully understand the value of those processes until they're in the spot of needing them (like in this case).

The problem is optics. Obviously from OPs perspective the vesting isn't part of the firing calculation. However from the perspective of another employee if they see someone get fired right before vesting then it looks like a bait and switch "we'll let you work up to vesting and then fire you to save money in the long run".

There's no obvious answer to when is it fine to fire someone before vesting. The day before is obviously not OK. 1 day after they started working obviously isn't an issue.

> what's the point of vesting at all?

I think usually it's intended to incentivize the employee to not quit, rather than to not be fired.

This is my thinking. Which leads me to think if he’s not performing he should be fired. Vesting or not vesting. The employee is hired to do a job and if he’s not doing it then let him go.

Vesting of options is supposed to be an incentive for employees to not quit, not an incentive for employers to fire people before it happens.

Trust is an iterated game, and while I'd not argue that you can't fire someone close to their shares vesting, I'd like to be fairly clear on shouldn't. If it's close enough that the political implications are obvious to the owner, it's close enough that the political implications are obvious to the other employees too. And so it becomes a political question.

In a non-iterated game, or one that only involved the employer and the employee, if someone has reached the point of being let go then there's no particular reason not to let them go, vesting or no vesting.

But in an iterated game, and when other employees can see and make inferences about what's happening, it absolutely makes sense to be seen to be generous. You are setting expectations on future behaviour that will make a difference to how the next rounds of the game are played.

On your note about sending signals to employees, as a candidate, if I was applying to a 10-person company with a formal PIP process, I would run for the hills. The signal that sends is that you're micromanaging and have a very CYA-culture. You're way too small to have a formal PIP process and under a dozen employees.

You're right that vesting is part of compensation, and completely wrong that this would be getting compensation denied after the fact. He's not vested yet. If he's fired today, he's not due anything.

Even among most wrongful termination suits this would be laughable.

At 10 ee's PIP may be too formal, but considering the long history of fractious founder / early-hire disputes, considering and beginning to formalise the process is a good idea. And you'll want that in place by the time you hit 40+ or so.

One school of organisational behaviour says that bureaucracy exists to protect both the organisation and participants (e.g., workers, customers, business partners, vendors, ...) by creating structure and process, rather than arbitrary action and judgements. See Charles Perrow's Complex Organizations: A Critical Essay (1986), somewhere in the early chapters.

https://www.worldcat.org/title/complex-organizations-a-criti...

https://archive.org/search.php?query=Complex+organizations+:...

Believe it or not this is on my reading list, though a handful of entries down.

I don't see how that applies if the employee was deliberately malperforming. A bonus should only be paid if the employee performed well and sometimes perhaps if you feel sympathetic towards the employee, but it seems neither is the case. The legal side should be no concern if other employees are on your side.

It goes both ways. Compensation must be earned. Doubly so for an extraordinary compensation such as an ownership in a company.

This person put in labor, maybe not great labor, but they earned their compensation. Ensuring the quality of the work meets the standards of the employer is ultimately on the employer.

And they might've taken a salary sacrifice in exchange for that equity; in my mind that makes it unethical to withhold any "earned" equity/options.

(I also think the typical cliff of a year is too high, I know the point is to keep cap tables from getting out of hand, but 6 months seems more reasonable given current average tenures).

Ownership in 0 is still 0.

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