Ask HN: Job Offer Stock Options - How Much Should be Disclosed? | Hacker News Reader

Ask HN: Job Offer Stock Options - How Much Should be Disclosed?

9 pointsDaniFong8 comments

I'm part of a small startup that's received some substantial venture backing. We're at the stage now where we are sending out job offers to people we're hoping will become our first non-founder members of our team.

The standard practice in such job offers seems to be to say how many options they'll get, but to not include a strike price, and more importantly, not include what fraction of the company that represents.

I think that's bogus -- I believe in full disclosure, or at least giving people the relevant data to allow them to evaluate what we're offering. So my cofounders and I have compromised by saying how many shares are currently outstanding.

This of course neglects to mention the fraction of the company that it would be after all the option pool is allocated, and after the tranches from our venture investments have fully played out.

I'm trying to get some impressions from people on either side of this issue. What would you want to see in a job offer, and what would you feel compelled to disclose were you doing the offering?

It's obviously completely meaningless to give prospective employees a count of options without the information needed to value them. It's fundamentally disrespectful, and it also communicates the idea that options don't have a hard value, but that they're instead an abstract point score system.

On the other hand:

(1) "Everyone" does it this way.

(2) Candidates are likely to be irrational about equity; for instance, 0.5% sounds like a very small number, but for a company charting the kind of exit that an A-rounded-funded company needs to get, it's not a small number.

(3) The reality is that nothing you commit to employees regarding your equity matters anyways; I'm sorry to be overly cynical, but, it's going to get rewritten at every funding round and at exit. Especially if you're starting out tranched.

Thanks for the response,

You seem to have summed up our take on it. Does Matasano offer stock options or profit sharing or run across similar issues? It seems to be the opinion of my partners that saying how many shares are outstanding is just about the limit of what we can say without an NDA.

In 2003, I almost left Arbor Networks for a dev job at Bloomberg. I had a (very significant) salary bump on the table. Arbor kept me with a small raise, but put some effort into a breakdown of how much my equity would be worth under some acquisition scenarios.

I'd have been better off taking the Bloomberg gig in retrospect, but I liked the negotiating approach; it allows you to put your spin on the equity numbers (which I think is fair, because people are dumb about equity), while still being forthright.

Everyone in your company should know what "the number" is. This is just an extension of knowing the number; "if we make our numbers, and then 2 years from now get bought, how much am I likely to make?"

nothing you commit to employees regarding your equity matters

It matters, but as an upper bound rather than a lower bound.

I am aware of one case where the first non-founder employee got options representing less than 0.01% of the company. In other words, a $100 mil exit would be worth less than $10,000 to him. He didn't realize this until years later. To avoid situations like this, as a prospective employee, you should always get the valuation information up front.

It's not an upper bound either. One company granted me significantly more upside when it exited than I "officially" had. Depending on the dynamics of an acquisition, incentive packages may completely rewrite the upper bound too.

I assume your funding has already set the params of what you can offer, so what is the value of hiding any of it?

Standard attitude toward stock options is that you'll get screwed. So why even bother to provide them if employees don't value them? The only way to get beyond this attitude, IMO, is to show employees yours is not a standard option deal, i.e. be transparent. Additionally, your need to use option contracts that are not so confusing and restrictive the employee feels screwed even with full disclosure. If you get these two parts right (or better than most), then you may get the motivated employee you are trying for.

I'm guessing this won't work for you at this point, but in a past company, I was able to offer key employees (not founders, but key folks) reverse vesting. I sold them stock up front (we even paid their cost of the transaction) and it vested over 4 years. They had to sell back whatever did not vest. I had uber-motivated employees. They were real owners! Its a shame traditional VC deals don't/can't allow for this.

"The one number you should know about your equity grant," by Chris Dixon (http://www.cdixon.org/?p=467), addresses some of these issues.

Congrats on the funding, Dani!

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