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Comment by onlyrealcuzzo | Hacker News Reader

No, these are RSUs, which - to your shock - are taxed as ordinary income upon payout (if that even occurs).

He did not get some custom stock now that will appreciate in value magically, if and only if he meets targets - or certain types of options can also act like this.

Even if GOOG stock grew so much, that this ended up being a $3B pay package, he'd be taxed as ordinary income on the full amount at payout - not even the reduced capital gains on the extra ~$2.7B in growth between agreement and payout.

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These aren’t options, but you are otherwise correct.

Shocking? Taxed on payout is a discount versus ordinary stiffs who get taxed every year. A percentage taken from the increase of an amount every year, is more than the same percentage taken at the end; as the former foregoes the opportunity to earn a return on the amount taxed earlier. This is quite significant over longer periods. (I learned that from one of Warren Buffet's annual letters - I think he was explaining why insurance is a great business to be in, because the same effect applies to long-horizon insurance policies).

Getting a lump-sum payment at the end of three years is worse than getting paid incrementally, and is sort of the opposite of how insurance companies make money (which is taking frontloaded payments for long-term liabilities and investing the float).

You're thinking about cash. This is options

He is not getting options. ISOs have some interesting tax properties that are completely irrelevant to this.

> A percentage taken from the increase of an amount every year, is more than the same percentage taken at the end

It sounds like you're describing a hypothetical tax on unrealized gains? Do you have a link to the Buffet letter?

No; just the difference between someone who gets a fixed number of shares and has to sell them (and pay the tax on them) that year, versus someone who is allowed to accumulate the shares and pay the tax at the end.

This may assume that there is more alpha in the shares than other investments you have access to, which is perhaps less true today. But it should probably be your position if you're CEO of the company...

All the Buffett letters are online, but I don't remember what year it was. If I get time I may find it and report back.

Why do you think they get to accumulate shares and pay tax at the end. If options Sundar will have the pay income when exercised, or if RSU, they will have to pay income taxes when granted.

If you want to research the tax imlications, the relevant term is PSU (Performance Stock Units), which is the form almost all of these CEO incentives take.

(edited) My bad, I meant to type "options" not "shares". You get to choose when to exercise options. When tax is incurred will vary according to your jurisdiction.

I'm fairly sure that Sundar Pinchai will have paid someone to research the tax implications before negotiating this deal.

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