We need to rethink employee compensation
aaronkharris.com
aaronkharris.com
To put it a slightly different way, I can't pay my rent with options. You can offer me all the options in the world, but my landlord doesn't accept them as payment. Therefore, you cannot simply exchange salary for equity.
I received an offer from a company a year or two ago, and they offered me a salary almost 50% below my then-current salary, and then some equity. When I tried to negotiate on salary, the CEO berated me for ignoring the equity. The problem is that as far as equity is concerned, it's worth $0 until you exit. There's a potential for millions, but my lottery ticket is also worth potentially millions of dollars. My landlord won't accept my lottery ticket as payment.
Long story short, Aaron is correct: startups need to rethink the whole equity component. It's valuable -- but it's not valuable in the same way that salary is, especially in today's market.
Pay me money. That's actually useful.
So far, I think I've been in 3 decent startups that all of which failed and do not exist anymore. None of them exited cleanly. Some might, but you might not want to stick it out that long, and those are often hard commitments to make depending on the work environment.
New grads and skilled developers alike should never be seduced by "we can't pay more , because we are startup, because we'll give you more options". Not only is the probability of success a factor, but so is dillution, and so is the chance that you won't see that money for 8-10 years even if things go well (long after a company is acquired).
Many sales can end in a net-loss, or only VCs get paid out. Sometimes the CEO nets a really nice private deal to run the new company (and has also been extracting a nice salary all along, probably).
Stock is free to give out, so a company is going to try to give you that instead of money. While it can be nice, possible payouts for most are going to be low, and often enhanced salary over that N years would have been better - and especially from an expected value calculation perspective.
Obviously, there are exceptions, but I'm a big believer that companies should share profits, and probably evenly, without regard to title hierarchy instead. I'd also scrap or outlaw 'executive' bonuses when the employee bonuses are not along the same lines in terms of flat value (not % rate).
Amen. Not such a good notion to trade salary for options, when that extra salary could have been invested all that time. $10k in 2005 is equivalent to $17k in 2015, $21k if you consider dividends reinvested.
I founded and ran a good part of an A-round startup for a while.
I'm aware what stock does to equity, but it has minimal value to employees if it's not going to be a thing, and for a startup watching burn rate, it's pretty freaking free.
Are you going to give it all up and waste the option pool? Of course not. To me, I'd rather have employees with a good chunk of the equity because they were all doing a good chunk of the work, but I also want to see them treated well in stock. And you know your thing might not work out. Being stingy to employees with stock doesn't feel right.
I don't believe in founders hording stock when everybody working for them built a good chunk of what they sell. They should keep a decent chunk, but sharing stock well is basic ethics and costs nothing on the burn rate. It's the same reason I don't believe CEO's should make 50x of what an employee makes in a given year.
Stock is pretty cheap to give away in a startup. It's not cheap in a private company. I do especially object when it's used in lieu of market-rate compensation on the hope of future gain, with "we're giving you lots of stock" and then expecting the long hours and then it doesn't pay off for folks.
At any rate, employees should not take them seriously in comp negotiations until they are well into FU money territory, should they ever pay out at a reasonable valuation after accounting for underhanded shit like excessive dilution and claw-backs.
Don't options typically vest after one year of employment? Is that "too far in the future?"
Also if you leave the company early, you will usually have to pay some trivial amount (possibly thousands though) to keep the options.
This has at least been the case at all startups I've seen.
With the 1-year cliff in place, I'd rather options just be given to departing employees, as it seems like payment for their work.
More companies are now switching to converting ISO grants to NSO after you leave a company, and allowing a longer term to exercise. Pinterest famously allows, in some cases, employees to have up to 7 years to exercise vested shares after leaving [0]. Most companies do not do this (yet). Exercising an ISO grant can be much more favorable taxation wise than exercising a non-qualified NSO grant.
If you give shares to an employee, it will likely be a taxable event, as the IRS sees this as taxable compensation.
Also, most grants are at non-trivial strike prices. If you're a super early employee, you might have grants at a very low price, usually a few cents. However, the vast majority of grants are at much higher strike prices where exercise costs are processed in the tens to hundreds of $thousands.
Exercising and taxation are a difficult topic that very few fully grok.
Source: work at eShares.
NSO also has a few other downsides. For employees, when you exercise an NSO, you actually have to pay tax at the time of exercise - the company withholds it and reports it as ordinary income tax (pay taxes in addition to the cost to exercise).
ISO grants can also have horrible tax implications, but you at least get a bit more flexibility as an employee -- this is also why November/December tend to have a disproportionally high number of exercises, as people get a full picture of their potential AMT liability caps.
When a company's valuation is skyrocketing and liquidation is highly likely (IPO or other M&A event), you'll often see companies offering early exercise, which can help avoid huge AMT hits, so employees are exercising when their strike price == the company's current fair market value.
http://www.startupcompanylawyer.com/2009/01/11/should-a-comp...
If you exercise and sell at the same time, you will pay short-term income taxes, but without any AMT to worry about.
I agree that exercising and selling can be a good strategy but we're (mostly) talking about private companies here where that may not be an option due to a lack of liquidity.
That would be a Big Red Flag for me.
This is a good idea, but I'm not sure it takes things far enough.
For the majority of developers, options are often not especially valuable even when they vest. The most common value outcome of a success/sale seems to be "modest bonus" (4 figures to low five figures) rather than a jump up to a different economic class. I suspect many devs could do as well by going out and getting new job offers every year or two, assuming reasonable negotiation skills.
That's all my options were worth and to get that return, I worked for about 20 startups over 2 decades... only one paid off.
Share As You Earn SAYE is a savings plan in the UK which allows employees to save money from their salary in company shares.
The UK has really weird schemes because people have historically had no pension or savings plans from their employees (most PAYE workers still do not have pension as the date mandated by law is always being deferred).
With SAYE as far as i know the employer is not allowed to grant you equity, what they can do is give a fixed yearly rate (usually heavily discounted) for share purchases, but it's not as sweet as it seems. The dividends and the equity rights from the shares belong to the employer not the employee, this is basically a way to allow employers issue shares (in large volumes) without losing control over the company, having to do payouts, and decreasing the market value of their normal shares as SAYE shares are not tradeable.
It also allows employers to bypass various laws preventing normal employees from having too high of a share of the company, and ties employees to their employer since not only do they rely on it for their salary but also as their investment/savings provider and since SAYE plans are either 5 or 3 years long it pretty much means that invested employees will not living the company during the SAYE period unless they want to lose their investment (and yes they will lose it).
BT's Sharesave is also a "unicorn" and from the current buy-in value it will probably won't repeat it self, yes a few people who saved up the max amount (225 GBP a month) gotten about 80K in return. But and this is a big but those were the 1st shares issues at 80p per share, when they matured the shares closed at over 300pp/s the last round of the SAYE program had a buyin of 250pp/s so pretty much no one will see these returns again.
P.S. The money you gain for SAYE Isn't tax free you pay capital gains tax on it if you sell them once they are matured.
Also since SAYE with all of it's bells and whistles is a company options plan (with heavy tax incentives to the employer) it's still a risk, some people got huge returns others didn't since the share price was lower than the option price.
BT has a FS scheme unfortunetly now closed to new entrants and its DC pension matches up to 8 or 10%
The shares you get from share saves are real shares none of this multiple share lasses with different voting powers.
And I certainly get the divi from mine. And yes this years BT is a v good one. And I did 400% roi from my REL shares a couple of years back and you can normaly mitigate any tax by sensible use of ISAs and using your CGT Alowance.
And there are share schemes for high performers on top of that I know people that got some the share save is what everyone gets.
The shares you got from Sharesave would be "real" shares only if you bought them at the end of the maturation period if you cashed out you wouldn't get to keep any shares, and you don't have voting rights or dividends for those shares while they are in Sharesave.
There are quite a few schemes for this https://www.gov.uk/tax-employee-share-schemes/company-share-...
But any how, this again ins't the same thing as the equity most people get for startups, so again not really a good comparison.
1. High risk fund backed pension. Probably will decline in value due to fund saturation.
2. Low risk fund backed pension. You pay more in yearly fees and decline in value.
I killed mine dead. Stupid idea.
If base rate was higher, perhaps but its a stupid stupid idea now.
The tax relief was nullified instantly by the discussion with my employers that sort of went "give me another £10k or I go work somewhere else".
Meh.
I don't actually have a problem paying tax. I've learned to consider my income after tax, not before. Maximising the difference is easier through getting the initial captial larger than it is reducing the difference and doing the associated paperwork (and periodically getting buggered by HMRC). I can still move up another £30k if I want to but the current place is convenient.
And saving tax now at 40-50% and only paying standard rate later is a no brainer and if you can do it via salary sacrifice and get some or all of the NI added to the pensions
It's entirely crazy. I just asked for more cash and chucked the money on the commodities market. My portfolio is worth 178% what it was 12 months ago. Sod tax. Sod pensions.
That cash goes into house. That house I live in. Better interest rate. Sell when the kids have moved out. Live off cash, dumping bits of it in various other investments to avoid inheritance tax in the future.
The main differences are that for approved schemes HMRC doesn't screw you like the IRS does and if you leave early you can exercise your options and the is far less chance of being diluted.
SAYE allows the employer to deduct upto 225 GBP a month (pre tax) from the employees salary and put it into an investment scheme that ties that money into a share options plan.
The shares have a set value at the entry into the scheme and the company "allocates" an amount of shares based on the end savings projects for that period.
At the end of the period when the options mature you can decide to cash out get your "deposit" + a proportional revenue from the shares maturation value, or to buy out the option at the set price and own the shares fully.
The payout out, the control over the stock, and some other factors are quite different than just a simply option scheme when a company allows employees to buy option/shares or gives it to them as pure compensation.
Basically the best way to describe SAYE is like an ISA/401K but one which the employer controls, and also greatly benefits from.
Now don't get me wrong SAYE schemes especially for low paid employees in freshly privatized organizations can yield good payouts, not always, but they usually do especially when the organizations are too big to fail like BT. It also allows companies in industries which are barred from regular employee share/options like banks for example to grant employees a share investment plan. But it's not some magic nifty employee empowerment plan, it's much more beneficial to most employers than it is to employees.
And BT does have other share schemes I know as my PM got some as a bonus for his work for the millennium dome - these tend to be kept quiet in fact my pm though it was a joke by some of v senior mates
Basically BT gave you a very wierd option, the strike price is granted when you enter the SAYE contract e.g. 2010, but the actual share option is given when the contract matures 2013/2015.
To put it in a more simple term, SAYE is a fancy "ISA", basically some one in the British government figured it out that most employees cannot buy into stock options at any reasonable strike price, SAYE only allows you to give a discount of 20% from the stock price on contract entry. After 3/5 years you get a lump sum which you saved + the interest rate and a bonus which is derived from the tax allowance SAYE savings. You can use that bonus to exercise the option you got based on the strike price you had 3 or 5 years ago if the difference is good enough and you buy the stocks and sell them you might get a very nice amount which you pay capital gain tax on, if there's not much difference or the stock price is lower than the option strike price well then you pretty much saved about as much as you would in your minimal interest cash ISA.
What you'r PM got i think is SIP, Share Incentive Plan it's another approved scheme that allows companies to grant company stock to employees, it's works very differently than SAYE. No fixed rate, no tax free bonus, it's taxed as income tax yada yada.
Obviously it's highly variable depending on the role. #24 could be a COO or could be a receptionist. But for the sake of argument let's assume they're a mid level engineer (taking a stab at what MCRed might have been at the gig in question).
Remember, in a lot of companies, the founders are diluted way back below 10%.
Make good decisions. Join the right team.
For instance, when youtube got bought, VCs were all interested in investing in online video companies. At that point, though, Youtube had already been bought! They were like 5 years too late.
-- Either be a founder if you want to be there in the early days.
-- Or join a "sure thing". EG: Google, Twitter, Facebook about a couple years before they went public were already household names and really well known.
I don't know how much upside you get joining a sure thing like that, but that's how you make sure your options will come into money.
Being employee number 5-100 of the average Silicon Valley startups is a losing proposition because the risk adjusted value of your options will never compensate you for your lost salary. (especially if you have to live in California- you're better off working for a startup in Austin than California due to the cost of living and tax situation. The higher salaries in California don't cover the difference.)
And yes, blame me, I turned down being employee number 13 at what became a $6B enterprise software company. Would have been CTO or way up in the executive team because they were a bunch of biz guys who needed a hacker. Instead I worked for just a year for a small business (not really a startup this was before "startups")
But it's damn hard to tell the difference at those early stages.
And when questions like "what's the total number of shares outstanding on a fully diluted basis?" (back when companies would say "You'll get 10,000 shares!!!!111!!") are met with "sorry that's confidential" during the hiring process, it is a bit difficult to do proper due diligence.
(I started at Google in 2004 and did pretty well.)
There is another facet to your second point, I think. Even if the upside from the "sure thing" two years before they IPO is not great from a financial perspective, the career growth is much faster than joining a mature mega-corp. For example, many people who joined Google/FB/Twitter a year or two before the IPO are very senior at those companies now. Granted, not everyone who joined Google in 2004 is a VP, but the probability of rapidly growing your career as the company grows is much higher than for someone joining Microsoft in 2004.
That fast career growth leads to either 1) High compensation ten years later as a director/VP or 2) Exec roles at sure-thing unicorns with meaningful equity, should they choose to leave Google/FB/Twitter.
I think there are two justifications to go early stage if you care about the financial aspects:
1) Be the founder, as you said
OR
2) You have concrete reasons to believe that the company has a meaningful competitive advantage in a large market.
These examples are far and few. For example, Google in 1998 had a meaningful competitive advantage, but Facebook in 2004 certainly did not. WhatsApp in 2010 did not, but I'd argue with Carmack, Oculus might have had (although unsure in this case). As you said, it's really hard to say at such an early stage.
Of course, if financial upside is not a major concern, then impact, agility, working on interesting stuff, avoiding mega-corp red tape, are all valid reasons to go early stage.
My equity at hiring time was probably %1.5, I think. But there was vesting, of course, and also a whole lot of unsavory business, mostly perpetrated by the VCs.
Trying to go into the detail and tangle out exactly why I got what I got would be just airing a lot of drama from the past and not really applicable to others.
I only presented those numbers because they're two objective facts from the best payout I got working for a startup.
I got a huge windfall from a year and a half I worked for just 50bp, as employee #5 and a principal contributor.
Do the math. Cut 30MM in half, and give half to investors. That leaves 15MM. Divide that 24 ways and nobody's getting 7 figures. But of course, that's not how it works; at 30MM, even an extremely egalitarian division of what's left after investors recoup is still going to get you into low 6 figures.
The problem for this person isn't that 30bp is a stingy allocation. It's that for a company with 24 employees - or, very conservatively, a 4-5MM annual burn - 30MM simply isn't a very good exit, no matter how big that number sounds.
Of course in crazy VC world this is probably supposed to be $12billion valuation or some nonsense to be worth it.
* VC funded company
* 24 employees
* <80th percentile of SFBA burn rate (ie: in Portland)
It doesn't matter how the VCs feel about the company. 30MM is not a very lucrative outcome for that company, mathematically.
You can make 30MM be an amazing outcome, but not if you bought yourself to an exit at barely-profitable on 6MM annual revenue using VC money.
30MM is a fantastic outcome for a bootstrapped company.
I think the question of what is a good return these days is a bit crazy. For this size company VC's should be looking at wanting a $150-300m exit on the low end. But unicorns are polluting this kind of idea.
For non-VC funded (bootstrapped, etc.) it's about an expected sale price for an established minimally growing company.
VCs can want $100M or $1B, but it was the VCs that chose to sell this company for $30M when it could have been $300B
Here's the ground truth: VCs are idiots. Yes, that one too.
They have money, though, so people pretend otherwise.
Hopefully, nobody is saying employees shouldn't be wary of VC funded companies. They definitely should.
If you take someone else's money, they should get ownership proportional to their investment, yes. Their impact on whether original management retains control should be proportional to their ownership.
The problem is, the crazy ideology of VC worship that has taken hold allows VCs to get disproportional control and chunk of the proceeds.
People are saying that founders shouldn't be wary of VCs. VC blogs are full of propaganda and rationalizations for giving them more control and more upside than is proportional to their investment. When the blogs make it to HN, the commentary is universally in support wit the rationalization that "they're taking risk, they need to protect it". They are taking a lot less risk than the founders who can only work for one company, nota portfolio... and the risk VCs are taking is covered by their equity. They don't need second and third helpings of control and equity to cover the risk.
I'm getting downvoted for saying VCs are idiots. (elsewhere people are getting upvoted for saying "Deniers are morons", so it's not the name calling. Its' the "if I can just get thur YC and get VC funding I'll have it made!" ideology that pervades HN.
No, there's a critical difference between your statement and that one: VCs are an identifiable class of people. Saying they're all idiots (something you don't know, couldn't possibly know, and indeed is not only false but obviously so) is attacking a specific group of people. "Deniers are morons", while obviously not a high-quality thing to say, is closer to a tautology. Both break the HN guidelines, but the former is worse.
This is not ideological. One needn't agree with everything every VC ever did to insist that calling them all idiots is wrong, breaks the site rules, and is correctly downvoted.
Sam once wondered whether we should make it explicitly against the HN guidelines to attack whole classes of people. At the time I said that sounded too legalistic. But it stuck in my head, and I have to say that every example I've seen come up in practice since then has suggested the value of such a rule. This is a good example.
-- Set us back by 6-18 months. One of the decisions forced on us by the VCs was to build on top of [another one of their portfolio companies technologies, we'll call it FOO], but FOO didn't have the performance or features we needed. Literally lost at least half a year on the product because of this (And a whole lot of money paid to FOO and their consulting arm.)
-- Forced us to sell before we were ready. When the economy looked like it was turning the VCs needed to raise cash to make their funds look successful, and decided that we weren't going to get 5 years after investment, since they could offload us now for a nice multiple they did so.
It happens this company could have gone without the VC round and bootstrapped its way. If it had done so, it probably would have exited for around $1B, maybe much more given that it was kicking google's ass.
There's not a lot you can do as an employee about mismanagement that results in crappy outcomes. But it's an orthogonal concern to how equity is allocated. The commenter upthread was right when they said: part of your job as an employee is to pick the right company to work for.
The reality is, VCs are herd animals, and when the herd is spooked they make a lot of stupid decisions.
I've seen this more than once-- a later company was forced to sell for $10M, by the VCs, during another "oh the money spigot might be turning off!"
It is not an orthogonal concern-- how was I to know the VCs were going to screw us over? The return would have been dramatically better if that hadn't happened.
So the lesson learned is-- the right company to work for is one where the founders either don't take VC money or are very distrustful of VCs and only take it on favorable terms.
Nobody is entitled to venture capital. Plenty of people start companies without it.
From a founder view, we shouldn't be carrying the weight of the effective cost of the fact that the VCs can't pick companies worth a damn and want to make it up on us, if we happen to be good.
Nobody is entitled to venture capital, and starting a company without it is a good idea.
And VCs are not entitled to more equity & control than makes economic sense for the founders. That's what I'm opposing, but I don't think you disagree.
People don't sell equity to VCs because they've been snake-charmed by them. They do it because if you need 2MM+ for your company, they're the only realistic option. Ever talk to a bank about a line of credit against receivables? That's a fun conversation.
But they weren't chasing a unicorn.
There's a lot of delusion among "unicorn chasers" that I've seen-- but that may not be the same group you're referring to.
If you can bootstrap, you virtually always should.
Its all about luck. Things can go either way.
There's multiple layers of risk and trust, too many dependencies. The transaction is too complicated and takes too long to complete. So the probability for exceptions to occur is great, and handling for those exceptions will likely fail due to the complicated nature of the transaction.
Actually you should count on them always being worth $0. Not only for compensation purposes but for your personal psychology. It's better to tie yourself to reality.
options should be seen in the same vein as bonus money - they don't exist until the money is in your hands. Some people work at places where bonuses can be relied on like bedrock, but usually I see people struggle to get their promised bonuses.
I don't know how strictly true that is in most cases, but it's a factor worth considering.
Apparently companies saw all the employees getting rich from private companies like Palantir and Facebook pre-IPO and considered that a problem to be solved. Check your contract, you probably don't "own" the stock you think you do.
Ultimately the company (the issuer of the options) holds the cards on these transactions. For a robust secondary private market, you need to:
- keep the company aware of the transactions, and understand their transaction process (right of first refusal, board approval, other transfer restrictions)
- provide that the buyer has been vetted and is an appropriate entrant on the company's Cap Table
- ensure that you are non encroaching on the company's own plans to provide systematic liquidity to their employees
- keep an audit trail of the transaction process to ensure no leakage of sensitive (or non-public) information
We're headed in the right direction. Pinterest deserves credit on a few different fronts:
1) Allowing employees to extend their window to exercise their options once they leave the company 2) Providing liquidity to their employees
I'm curious to hear from any hiring managers on this thread: do you think that offering liquidity/financing solutions for exercising options/helps attract better talent?
Let's be perfectly frank and talk about the facts here:
1) There is zero cost to the company to allowing 83b elections. All it does is remove the possibility of golden handcuffs (which are very effective when a new unicorn is minted every week).
2) There is no more "500 shareholder rule" after the JOBS act. It removed that. There is no penalty for having lots of shareholders -- especially when most stock transferred has no voting rights and no disclosure rights. Facebook "paid the price" for having lots of shareholders but in reality they did not. GS's investor vehicle took care of that. Facebook was not "forced" to go public. They went public at an incredibly old age as far as growth companies go.
3) There's an almost non-zero cost to have another company (like SecondMarket) handle share registration and transfers. It's not a huge overhead. Consider it your Nerf ammunition cost for the quarter.
4) The state of current stock option agreements is not to help you the employee. It's for the benefit of the company. Option agreements in the 80's and 90's did grow out of an altruistic "hey we're all in this together" theme. Today, it's "hey I have to give you these things because everyone else does, but if it were up to me, you would get bupkis and free meals."
Full disclosure, I work at a YC funded, non-unicorn. My shares (on paper) are worth a fair amount of money, and I need several $100k to buy the shares and pay taxes. I feel like I'm in a not-uncommon state. I know my options are technically worth zero right now since I can't sell them for anything (that is the definition of worth), but I know my wife will divorce me if I quit and walk away from them.
I've heard that Uber is supposedly the worst at this. There's no timeline specified in the option agreement. You must offer them right of first refusal, but there's no mention of timeliness. They can (and do) choose to ignore every share transfer that comes up in a board meeting (unless you're in the elite inner circle and are allowed to sell shares).
tl;dr Don't even consider a position at a company whose option agreement won't let you early exercise and won't let you freely transfer shares.
1) 409A (option pricing) valuation problems
2) Increase in # of shareholder problems
3) Legal issues (for both the company and employee) if buyers of shares later felt deceived by sellers
4) Team cohesion issues if different employees were getting radically different prices for there sales
You might disagree with the solution, but these are definitely real problems worthy of consideration.
as an employee, if you are lucky/skilled enough to end up at a successful startup, and you aren't very careful with tax issues, you can find yourself stuck: if you leave, you have to exercise, and immediately owe hundreds of thousands of dollars (or more!) on a completely illiquid asset that you can't sell. Which doesn't even take into account the potential for that asset to become less valuable.
That's not a decent way to treat people. Startups don't write the tax code, but many are willing to take advantage of it to control people this way.
After you put your 4 years in, you should be free to re-up or leave. Not free to leave if you are willing to risk all your liquid assets and/or borrow heavily.
And if one person leaves it's not likely to materially affect the business as everyone else keeps it going.
Another point of view is that if all the early employees disappear at the 4 year mark (or whenever they feel they've vested "enough") that could cause very serious problems for the business. There is an element of a prisoner's dilemma here and it's not unreasonable to think about ways to keep people from defecting.
As I said, it's complicated.
No. That's not the way it works.
Every dollar taken in investment reduces the likelihood of regular employees cashing out unless it boosts the ultimate stock price and success chance of the company significantly.
Too much money is chasing too many companies so the founders are tempted to take the money, roll the dice and hope they become a Facebook, even though the odds of that are extremely slim.
This is the difference between a "startup" and a business. Startups used to be a phase of business, but it's become it's own thing now.
A business will not take money it doesn't have to, realizing that profitability will fund growth. (And to be honest, I don't see a lot of mechanisms by which VC money funds growth-- all of the successes hit a viral growth loop or opened a massive unmet need... the VC money just made product development easier... mostly after the tornado started.)
And that's as only a part time investor. I like sure things (like I knew in 2001 from an understanding of economics that there would be a housing bubble and that it would eventually burst. I was never able to buy CDOs against the market, but I did profit from it until 2007 when things got crazy and I got out of the market-- a year early but I'll take it.)
I suspect most people can't do this... but they can buy a house or two in up and coming areas, and put extra salary into that. Rent one out, get your mortgage paid by your tenants and you're building a real estate empire... slowly, but it can make you rich.
Calling it gambling, however, is dishonest, and is popular among those who want to use that characterization to serve the purpose of denying people the opportunity to invest. For instance, despite working in startups for 20 years, regulations prevent me from being an angel investor (though it seems its common in california to simply ignore those regulations) ... because people like you think that I shouldn't be allowed to decide where to invest my money. Yet I could go to Las Vegas and blow $100k in a weekend.
So, no, it's not gambling. It's investing. And shame on you for saying otherwise.
Gambling is defined as "an enterprise undertaken or attempted with a risk of loss and a chance of profit or success." That's exactly what people do when they buy a stock or invest in a start-up. They just go to sites like E-trade and Schwab to do it rather than PokerStars. Unless you know of some risk-free stock where chance is not a factor (I'm all ears).
A gambling game where the house historically doesn't win (if you don't try to day trade). And historically, your money doubles in ~7 years.
> Sure, there are plenty of people who hit that jackpot too
Yes, many people hit that jackpot.
> let's not lump that together with the idea that 9-5 salary is a way to get rich.
There are many well off upper middle class that own multiple homes this way and retire at a reasonable if not early age, with a net worth that will leave substantial amounts to their kids.
Useful advice for a micro-fraction of the population, but this sounds like advice on "How best to wax your yachts" compared to even the average developer.
It's even more surprising when I find 30 year olds who haven't figured out to use the company match on their 401k yet.
These people called "executives" can. Programmers generally don't, unless they're very good and very mercenary, and even then "rich" means "7-figure net worth and the ability to consult at a decent rate as much as one wants". Which isn't bad at all but isn't VC MegaBux.
It might not be your definition of "rich" depending on how you grew up.
You invest half of your take-home salary, so $40k, $60k, $75k.
You invest everything at 4% real return.
That about $1 million after those fifteen years.
It's....... pretty rich, sure. It's also a LOT of savings. I'd say it's possible to get rich on salary if your salary gets high early and fast, or by the time you retire, maybe less so in fifteen years.
That's why they are trying to pay you with them. For them it's a one-way bet. It's sadly just another case of pushing risk onto the worker and not really passing on much of the upside.
There's 10 ways for you to get devalued to 0 and you have to avoid all of them to make a payout.
In fact: for this reason, I'd be especially wary of companies trying to buy a few thousand dollars of annual fully loaded cost with large amounts of equity --- it suggests extreme naivete.
In the life of every company there is a moment when there is not enough money to hire the next two people, but there is also a feeling that hiring those two people would take the company to the next stage so much faster as to make the hiring worthwhile. At that point you either raise more money directly from investors, or offer more equity to prospect employees, or hold back on the growth.
Raising extra money takes time, so it may not fit with the timing of things. Holding back should probably be preferential to giving away equity, however somethings growth is unusually important, for example when you're in the middle of a land-grab.
She had rejected his salary + equity offer which was a %50 salary cut from her current position.
Irrespective of what the equity portion was I thought the founder's response was disgusting and pretty much validated her decision to pass.
It's hard to value options. Really, really hard. Saying they're worthless, though, is lazy and counterproductive.
If you're joining a seed-stage private company, then yeah, it probably makes sense to so heavily discount the options package that maybe it is close to worthless.
But if you're joining a series C that's on the road to IPO or acquisition (look to see if their job listings include the word "compliance" anywhere), and the company has real revenue and growth, ignoring the options package just does you a disservice.
It's a lottery in the beginning... at some point later it becomes more of a calculated risk. Given a valuation and percent ownership, you have a good starting point. You can then discount based on future dilution, risk of failure, time horizon, etc. No, it's not a science, but automatically ignoring the value of an equity package is just as emotional a decision as a starry-eyed assumption of startup glamor.
Options are not how you pay people. Options are how, along with good raises, you keep them from leaving as the good parts of working for a small, nimble company leach out.
If you are coming on after a series C you won't be getting any significant equity unless you are joining as leadership, and even then you are in the club and going to be well compensated anyway.
This is the way I look at it:
A 50% chance to make $100K in 5 years with an interest rate of 5% is worth:
($100K * 0.5) / (1.05 ^ 5) = $39K
And if you have credit card debt then you should be discounting at something closer to 15%.
Let's say I'm asking for X salary. If the company offers me Y salary and W equity such that Y + W = X, then what they have done is gotten me to spend W of my salary investing in their company. If this pays off as an investment, that's great, but it isn't due to their generosity, but rather my investment. In fact, since I'm limited to investing in only their company (instead of being free to invest it in whatever I want), it is a large burden.
If they offer me Equity, W, such that Y + W > X, then (Y + W) - X is compensation (and X - Y is my investment in the company).
To sum up, if a company says, "We will pay you X salary, as long as you invest W in equity in our company" this is not in any way as valuable as X salary. W is a burden on me, not compensation. It is money I am giving them, not the other way around!
For this reason, I always negotiate salary independent of equity.
That is exactly right and I think what people are missing here. I mean even legally if you look at options purchases, you are literally investing. Even with stock grants, unless the company defers the strike tax through a loan mechanism, you will pay taxes as though it were real income.
There's two ways to look at this. Yes, you're locked into investing in just the company, but you're also being given the chance to invest in something that's not available to the general public. These investments are risky, but often very good.
I'm currently coming to the end of my 4-year vest in a company that was acquired 9 months after I started. I gave back some salary in exchange for more options when I started since the company looked very likely to exit. That investment, over the past 4 years, has quadrupled. Even in a bull market, there aren't many stocks that have ~40% annual returns over that time. And that's not even accounting for the fact that these kinds of investments are better from a tax standpoint (flexibility to avoid AMT, long-term cap gains, etc).
As others have said, it's not a simple decision. You're being given an investment opportunity that is normally only available to VCs. But unlike VCs, you can't diversify across a portfolio. But, also unlike VCs, you can directly influence the success of the company...I learned after our acquisition that in the few short months I was there, some of my actions played a significant part in us getting acquired. It's a really unique investment opportunity that's available to very few people. It doesn't make stock options as a class of investment good or bad bets, the exact details of every situation determine that, which makes it very hard to make blanket statements like many people are doing here.
Anyone who makes decisions based on the prospective value of options is a sucker. They are a nice bonus when they work out.
You're right that options in a reasonably well-established company can have some value, but such companies can also afford to pay a decent salary, and should.
Options in already-public companies are quite a bit less risky. I consider employee stock grants in a healthy public company to be worth about 75% of the current value of the stock. (The discount is because of the vesting period. If I change jobs, I lose some of the stock. If I stay at the job just to get the stock, when there's a better opportunity elsewhere, I lose that opportunity.)
The type of asset doesn't matter. Could be vested 10% options in an apparently great startup or Van Gogh's Starry Night.
If you can't sell it when you want (because of restrictions or because nobody wants it or for whatever reason), its market worth is exactly zero.
If you're joining as the 5th or 50th guy, your options are probably a long-shot and they're not really worth considering. But if you're joining a pre-IPO company i suggest that you minimize salary and maximize options. There are a lot of great outcomes in the $50-250k/year range in option value. It's no lotto ticket, more like an extra salary in addition to your base salary. And it's tax advantaged!
https://blog.wealthfront.com/college-vs-retirement-savings-s...
In somewhere with a high cost of living like SV increases in pay can significantly increase what you can save each year.
Say you take a $100k offer and equity compared to a $120k salary offer. Now lets say on $100k you save $10k year, and if you're on $120k between tax and a bit of extra spending you save $20k.
You've doubled your savings which you can put towards other investments. In this example its another $10k/year you could put into an investment property, stocks or whatever.
Or just go to Vegas each year and play a game of roulette.
It's similar to people who don't take vacation and think it puts them on the moral high ground.
You could work your ass off and make your company a huge success, but due to vesting and liquidity preference wind up with nothing. Unless you have enough skin in the game (read, you are an investor or founder), your options mostly useless.
My point is that the company's success is defined in terms of current revenue and future prospects. Your personal definition of success in determined by the delta in the value of your stock options between when they were issued and the present.
that implies that it is somehow better to work 24/7, when in fact often you get your best ideas when you are away from work, with friends, working out and so on, all things that are just as important to remain fresh and not burn out.
Considering that until you exit you can't know how much your options are worth (due to valuation, dilution, quarter results during the lockdown period after going public, etc. etc. etc.) to me options are worth $0 and do not come into play at all when evaluating a job at a company.
From my perspective it's all about what I'd be working on and with: is it something I believe in? is it something that has a chance of success? is it something I would see myself happy to work on every day? are the people I would work with people I can mesh well with? All of those are a lot more important than a lottery ticket.
Another thing you might want to consider on the hiring side is that paying way below market salaries and offering options instead you are likely to attract employees that find that agreeable, which might or might not be who would help you be successful: sometimes it might be better hiring a single experienced developer at market than 2 less experienced ones that are willing to work for cheap, especially towards the beginning when it comes to making architectural decisions that might stick around for a long time and come back to bite you later.
They are not worthless, but it's important to value them accurately.
It is possible to value options using black scholes or other valuation metrics. But every time I've run the numbers the present day value of the options is never even 1/10th of the value of the salary you're asked to give up.
I've concluded the only way to do a startup is to be one of no more than 3 founders.
Then, if the shares pay off, the return might be worth the risk.
If that's less than your equity stake, then take the corporate job and use the extra cash to invest in startups.
So let's say that comes out to $100K.
You have to discount that to present value. Money is worth more now than it is in the future.
Assuming an interest rate of 5% and there being a liquidity event in 5 years that is (1.05 ^ 5).
So $100K in 5 years at 5% is worth $78K now.
You also have to factor in risk. There are various models but I like to simply multiply by the probability of exit.
So if there is a 10% chance you will see something then I take the $78K and multiply by 0.10 which comes out to $7.8K.
Also, if you exercise early there is even more risk. Let's say you paid $10K for them. That $10K invested at 5% would have netted $10K * 1.05 ^ 5 = $12.8K.
So you are risking $12.8K to make $78K. But I would compare it as $12.8K vs the adjusted average expected return ($7.8K).
Personally though, if I can't predict something with > 90% accuracy/reliability then I'm not interested in investing in it.
VC-istan: you can get dicked out of your bonus for reasons you don't understand (liquidation preferences, vesting resets and cliffing) or that are purely political and lose 6 years' worth of expected bonus.
Wall Street: you can get dicked out of your bonus for reasons you don't understand or that are purely political and lose 11.9 months' worth of expected bonus.
I'd rather have the losses be limited, and have more opportunities for negotiation and revision. Wall Street's system is just better. We may not like that industry, but the facts are clear.
The difference is that Wall Street has profits to share. A standard company has much less profits than Wall Street, and a startup loses money. Find a way to create a company that creates a positive value for the society while having Wall Street like profits, and I can guarantee you will become rich.
a crazy concept in silicon valley
Preferences are a trap (for everyone in the company, founders included): if the company takes money at an ambitious valuation, their investors probably have terms that claw back their money if the company sells for an unspectacular number.
Vesting and cliffs are pretty straightforward. You get no equity unless you last a year. You get get your equity in pieces over 4 years. That's pretty much the only sane way for a company to operate, and it's how every well-managed company runs.
I'm not sure what you mean by "vesting resets". How do you reset someone's vesting schedule?
Let's say that the employee has 0.4% (after dilution) of BuzzFlop with a 4-year vesting cycle. After 2.5 years, BuzzFlop is bought by Hooli for $100M in Hooli stock. The employee doesn't get $250k in walk-away cash, but $250k in Hooli stock, subject itself to a vesting schedule (and possibly a "refresher"). If that employee gets cliffed (which can happen in a merger) then none of that stock ever vests.
Are you saying: the vesting schedule on your as-yet unvested stock might reset when the company is acquired?
How often does that happen? How often does the exact opposite thing happen --- accelerated vesting on change of control? Because that other thing also happens.
I think Michael has a very legitimate position here, and one that is not well understood at all.
As a side note, I think Netflix' strategy of paying people a lot of money with no stock/rsu's/options is the right one.
What is the difference between the following two compensation strategies: (1) You get 100 options, that vest at 1/4 after one year and 1/4 after every following year. (2) You don't get any options now. You will get 25 options, which can be exercised immediately (or whatever the equivalent status is of vested options), after one year. And similarly three more times.
I assume it's 30% (a) taxes, 65% (b) psychology, and 5% (c) something that happens if there's an IPO or other exciting event?
In short, where can I read about what startup compensation is, why it is the way it is, and the math behind how much it's worth?
The normal way it works: you get 1/48th of your allocation every month you work there, EXCEPT that you don't get the first 12 months worth until you stay for a whole year --- the first 12 months are "all or nothing".
Alternatively, why aren't salary offers phrased as "you will get $640,000, which vests at 1/48 per month"? (Usually you'll hear "your salary is $160,000 per year and we do payroll monthly.)
When the accounting and law professions catch up with the tech I think we'll see this all being much simpler, as with government and driving licenses and all the other pointless bureaucracy. But judging by how slowly bureaucracy moves, don't hold your breath.
Replacing vesting with options artificially discounted to the FMV of the company at hire might not be different fundamentally from vesting, but it seems like there's lots of ways to abuse the capability of issuing discounted options.
Options at the money are also incredibly valuable, and even more so when they're for a startup (hence their usage in compensation). It's instructive to look at the prices for at-the-money options on, say, GOOG 1--2 years out to see how much they're worth on the open market (easily 10% of the current stock price).
As far as I understand, granting an option now with a currently "fair" strike price which "vests" in the future (but only if the person is still employed), does not create a taxable event at the time of vesting. However, granting an option in the future at the exact same strike price at the exact same time, creates a taxable event.
So my understanding is that option vesting is "simply" tax-preferred.
Example: assume the valuations each year are 0.10, 0.20, 0.30, 0.40, 0.50 and the sale price is $1 at year 5.
In option 1 your strike price will be $0.10 for all 100 options so should you choose to exercise you have to pay $10, netting you $90. You can choose to exercise these as they vest, paying $2.50 each year. If you choose to exercise on vest, your cost is the same, although you potentially will owe AMT.
This means that if you make enough money you essentially have to declare the difference between strike price and current value as income. This means you will have to potentially pay taxes on an extra $25 over the four years.
In option 2, exercising the options will require $5.00, $7.50, $10, $12.50 for a total of $35. This means you only make $65 in the sale.
(I assume I should look up "409a", the magic keyword to answer my questions?)
EDIT: to be clear, 1 and 2 refer to the original differences in the first post. If we are comparing different exercise time with the same strike price, then the taxes are nominally the same (Because the income tax % you pay depends on your income, you might be able to save money by exercising in a year when your income is low).
We didn't see eye to eye on that and I work at a large company now.
Are lottery tickets worth $0 until the drawing happens?
No. They are worth $2, or the price you paid for them. Likewise, pre-exit options do have value (as you note), but it is nonsense to simultaneously say they are worth $0.
Maybe the reason this is harder to grok is options don't have an established market price like lottery tickets do. Their early-stage value is simply a negotiation between employer and recruit (note: it's not the strike price). But it's a mistake to conclude that they have no dollar value, yet are worth something, just because negotiating a dollar value is awkward and hard.
Depends how you're defining worth. The ticket has multiple "worths". The first is probably around $2 which is what you could theoretically sell it to someone else for. The second is the expected value of the payout based on the prizes, odds and number of tickets sold. This worth could be $1 or $1.74 or it could be greater than $2 (think about the case where the prize is really high).
I know, not exactly your main point.
Options are the equivalent of lottery tickets. Great if you number comes up, recycling if they dont.
However, my empathy goes out to early-stage (pre Series-A companies)...how do you get those engineers then if you, yourselves, have no money and know that equity doesn't pay the bills. Is it through revenue/profit sharing? Cause I would imagine if I wanted to start my own company, and I was looking for someone post-founders in a pre Series-A environment, I can't imagine my seed investments would give me enough cushion to hire near market rates.
Just playing devil's advocate here, but I wholeheartedly agree we need to compensate startup employees better.
Calculate your expected return over the next 5 years. Most startups come up really short.
In fact, I'm making the kind of money from my first post (not bragging, you asked for evidence). But what's really funny are the isolated unicorns out there making $1M+ annually because they were both very smart and very lucky to have the specific skills for a hot technology that ignited a runaway bidding war between giants. I have never been close to that lucky but I have witnessed it firsthand.
As for me, my offers are $250K+ when I've interviewed for big co or late stage startup positions. In contrast, my startup offers are $150-$200K with 0.7% or less equity. The startup offers are completely uninteresting to me at that level. I'm better served branching out on my own which I may or may not do someday (YOLO and all that).
Fortunately, someone sensible figuratively smacked me upside the head and convinced me to take a more practical job (which ended up pretty fun actually).
http://www.glassdoor.com/Salary/Google-Senior-Software-Engin...
About 250k in total comp. A lot of it is in stock grants, but those are completely liquid.
B) Sure, without getting too specific, I started out as a videogame developer writing games entirely in assembler, branched out to multi-processor and multi-user games also in assembler, and that set me up nicely for writing device driver code for Windows and that's how I got my first gig in the valley.
You can follow exactly in my footsteps by really learning C/C++ and how to optimize it on x86 processors or whatever takes their place down the road. I'm not writing x86 much anymore, but I'm still writing very low-level parallel code, and it is next to impossible to find people who are really good at this because they've either been snatched up by Big Co and hedge funds making far more than I do or they're nowhere near as good as they think they are.
But who knows what they future will bring, so don't follow it exactly but instead go learn the things that are both in demand and that people complain are too hard. That's what worked for me. When game developers said 3D was too hard, I jumped into it. When game developers said multi-core was too difficult, I mastered it. And those are the skills that led to my biggest paydays(1).
1. You can of course make $100M doing nothing but Ruby/Javscript/Python (and especially PHP), but that wasn't the path I took (though sometimes I think I should have).
> But who knows what they future will bring, so don't follow it exactly but instead go learn the things that are both in demand and that people complain are too hard. That's what worked for me. When game developers said 3D was too hard, I jumped into it. When game developers said multi-core was too difficult, I mastered it. And those are the skills that led to my biggest paydays(1).
That sounds like a rather neat advice right there.
I know Google, Facebook, etc. also do but those salaries are probably reserved for the van Rossum's (Google/Dropbox) and the Lerdorf's (Etsy) of the world.
I'm no van Rossum, but I'm pretty good at the thing I do.
I also have been told by a friend that his brother ran a company that was acquired by Google for $100m, and suspects that his brother makes several million $ a year from Google (he wasn't ever told how much) - that is probably more of an outlier though.
This indicates that what you're looking for at the moment is cash, not ownership over assets. This is fine. However, this preference is by no means universal. I imagine that beyond certain amount cash isn't useful anymore and you begin looking for ways to invest it anyway.
Generally, cash loses value due to inflation, but offers high liquidity (you can spend it right away). Many other assets offer capital gains, but are a lot less liquid (you cannot easily sell them, e.g. the options in the blogpost).
I wonder to what degree the preference for cash expressed by the author of the blogpost may be driven by low interest rates (which reduce the appeal of many types of illiquid assets) and low inflation (which increases the appeal of cash) thus tipping the balance of incentives in favor of cash. Probably not the whole story, but may be a factor?
Just curious: are you under 25? Not meant as ad hominem -- I know tons of engineers who have this attitude from 22-25, but the closer I get to 30 the more I realize on a deep level that I'm going to die someday and I have a finite amount of time to love others, watch sunsets, laugh, meet interesting people, etc. It's gotten to the point where I have trouble relating to newly-minted engineers because they seem stoked to work until 9 PM in exchange for Nerf guns and the illusory promise of a liquidity event.
However, the grandparent specifically formulated the choice as a dilemma: (I'd work my ass off without options, but the options really make it easy to say "I will do everything in my power to make this succeed" instead of "I'd rather go spend time with my friends tonight"), and that is probably what the parent was referring to.
My favorite learning experience (from a startup perspective) is also the one I think was the biggest failure. So much tech and a lot of dedication on my part, but looking back, the lost time with my wife. All of it really due to a lack of planning and an over commitment by management expecting engineering to step up. I don't ever recall being asked for estimates, just what needed to be done. I was in my tunnel at the time, building things.
I look back and the pre-devops, "devops" call at 1pm on a Saturday (after a 60+ hour week, they didn't have / hire sys admins before launching) was basically the end of line for me. Thankfully, the wife and I were driving back down 1 from SF to the Central Coast. We took our time and nourished the lack of coverage.
These days I look at startups as an opportunity to have a significant impact, build something interesting, but what am I giving up for the particular company? Can I gain the same benefits through other channels?
I recall a YC event where companies were pitching looking for talent. At least the Justin.TV guy was honest and said "we work our asses off", the startup that pitched "we work together, we play together, and we hang out with our customers at 9pm trouble shooting" -- great if you just moved to the area and don't have other outlets.
I've had some grate discussions with a few YC companies recruiting, some were wrong fit, some wrong match, some wrong time. In general, positive.
But the original thread is right...for a lot of the talent some companies want, compensation needs to match the talent level desired and equity/option, that crap shoot needs revamping.
Dilution is life; just accept it. No employee or founder stock will ever have an anti-dilution provision.
If I'm a founder and I own 100% then give up half the company to investors, that 50% I give up better improve my overall outcome by at least 2x. Usually that's reflected in the overall valuation.
The chance of failure as a startup is significantly higher than its success. Plus, not everyone can achieve favorable offers that adhere to PG's equation. This is what real life is like, so you have to take into account unfavorable offers having to be accepted to possibly keep the lights on. Additionally, I threw up a quick scenario on http://www.tejusparikh.com/projects/equity_calculator/index....
I used a similar offer as mine, using .1% with rounds that had 1 million @ 1 million pre-money valuation, 5 million @ 15 million, 30 million @ 100 million and finally a sale of 200 million. The difference between 10k salary over 4 years in this scenario comes out to be a net gain of ~13k for an individual at the startup.
In my particular case if I switch this to a .17% offer and take a 10k salary cut, I am actually losing roughly 1k running through a scenario like that without factoring in the interest on 40k.
If you are getting founders shares as a founding member of the team, that is one particular calculus that I alluded to but do not address.
If you are a "founding engineer" but not really getting founding shares, but the typical fraction to a couple of percent that is one thing.
If you are a non-founding C-Level title that is another scenario to discuss.
If you are an early engineer, that is basically the same as "founding engineer" above.
If you are getting non-founding equity as an early employee, you have to be aware of of dilution after each round. In nearly every case, an early employee post Series-A likely will be getting pay more and more equity than an early non-founding employee.
Also to everyone else if a founder wants to pay you a lot with equity, you have to wonder how confident he or she is in long term value. If they really are going to be worth so much, why aren't they clutching those shares more tightly and throwing cash at you instead?
Now I'm close to 48. Having more control over my time is worth more to me than the possibility of a big pay day.
If you're lucky.
In reality, not even that is true for most options and most employees.
For most companies, even doing well and going to an IPO or acquisition isn't going to make more than a handful of employees rich.
Unless you get in very early (employee 10 or earlier maybe) or the company does amazingly well (think Facebook or Microsoft), you're generally not going to get rich off of stock options. If the company does really well you'll buy a new car and pay off your house, but the chances of retiring early are pretty low.
If the company is public, then you can essentially leave whenever you want, exercise the options and sell the stock to pay the costs (exercise price + taxes).
But if the company is private, you have to pay the exercise price + applicable taxes (which can exist even if you only have theoretical gains) yourself, without the ability to hedge your risk and sell the still illiquid stock. If you have ISO stock options, you have 90 days after you leave (or are fired) to figure this out or lose the stock options altogether.
So if you are joining a company with the following combination of elements:
1) High exercise price (the math is: # of options * exercise price... is this a lot of money or not)
2) ISO stock options or the stock option plan gives you limited time to exercise after you leave
3) No reliable system to sell the private stock
Then you should add in a further discount on the stock options, because there may be situations where you cannot afford to reap the benefits of the options if you leave (or are fired) before there is reliable liquidity for the stock.
Take a look at the Pinterest options plan[1], where Pinterest actually gives you 7 years from when you leave to exercise. Your ISO options just flip to NSO after 90 days.
[0] http://www.mystockoptions.com/faq/index.cfm/catID/36274DB1-D... [1] http://fortune.com/2015/03/23/pinterest-employee-taxes/
If you are working at a company like Pinterest with a more employee-friendly option plan, then you should value the stock options at a higher value as compared to less employee-friendly plans. I ultra-long expiration periods are awesome, and they are another practical method to deal with the longer period to IPO. These types of options aren't as good as having liquidity for the stock, but with them you can be sure that if you vest the option and the company value goes way up, you'll get the benefit from that.
One not-as-obvious reason why companies are reluctant to set long expiration dates on options is because it means former employees take up space in the cap table even if they have no intention of ever exercising that option. The company essentially has to treat those shares as having been purchased, without having received any cash for said purchase. Cap table cruft can make it harder to negotiate subsequent funding rounds.
Please. These are discounted to zero by anyone worth a salt.
If anyone else is concerned about this, you should talk with your CEO/legal team about early exercise options which can remove a lot of the risk of massive tax liabilities. From my understanding, some companies offer an early exercise option where you pre-purchase the shares and then instead of being able to buy the shares after they've vested, the company instead gradually loses the right to buy them back at the original strike price.
I'm not a tax lawyer, but Google "section 83(b) election" and you'll find more information.
The amount you would pay for restricted stock is exactly the same as what would otherwise be your strike price for stock options, assuming the same number of shares.
For an employee, the major down side of choosing restricted stock (assuming non-negligible valuation) is that if the company fails and the stock ends up being worth nothing, you don't get that money back. Whereas with stock options, you have more time to find out if the stock will be worth anything before you buy into it.
The up side is possible tax advantages, but of course I cannot give tax advice.
(All this is information I've learned while being the founder of sandstorm.io; I am not an expert in these things.)
PS. Don't forget to file your 83(b). (Any time you say "restricted stock" to a startup founder, they will instinctively reply with "Don't forget to file your 83(b)".)
I'm sure there's some silly accounting reason having to do with option pools and cap tables.
On a restricted stock grant, the recipient has to either pay for the shares on day one, or the company gives them to the recipient for free and the recipient incurs a tax liability for the value of the stock on day one.
It's very easy for the board to completely dilute you to nothingness, and having exercised, well, the attitude is "fuck you" because there is nothing more you can give the company.
Is this certain? My understanding is that the spread between the current stock price and exercise price _can_ be taxed at the AMT rate. And if you were to sell the stock, you can get any taxes paid back in the form of an AMT credit. Still liable to pay capital gains or short term gains tax though at the sale. Without the AMT credit, it would essentially be double taxation.
Is it "We should pay people more?"
But isn't that really a question of whether or not you can find people who will work for the salary your offering? If you can't you raise what your willing to pay until you find someone who will right?
Or is it "We should make options always remunerative?"
In which case they aren't really options are they? They are just salary so why not just switch to a fixed + variable salary system like so many folks do. Heck you could even go all pay to perform like sales folks have been paid for ages, "Get this code done, you get paid, don't you don't." I personally don't think that incents the best choices but it can motivate.
If you want to write into your corporate by laws that every round of funding includes a 10% of the shares in the funding must come from employees common stock, and you always divide by 'n' (the number of employees that want to participate) the amount of stock they can contribute, well that is ok, except your converting common to preferred in that case and the SEC is going to ask a lot of questions about that.
There is the perception that founders of unicorns are rich, but trust me, they aren't, what they are is "rich on paper" and when they can't raise any more money and they are running out of cash on hand, the founders stock is going to be worth just as much as the employee's stock, which is near 0. So it will all even out. There are a lot of people who were working in the Bay Area during the 90s (and I'm one of them) that were multi-millionaires on paper at some point, and that same paper because worthless sometime later before it could be converted into cash. Did I "lose" 12 million dollars? No, of course not. I never had 12 million dollars, what I had was a concatenation of increasingly improbable if statements which if the 'true' path was followed to the end, could be converted into $12M. Since not all of those if statements resolved true, the actual result was about $83,000. Lots and lots of people had the same sort of experience.
Aaron, if you're reading, what problem are you trying to solve?
I've often wondered whether the best education that you could give youngsters would be a course that was probabilistically graded. If you work hard and ace the tests, it would increase the chance that you get a good grade - but your final grade also depends on things like the teacher's mood, the roll of a d20, the stock market performance on grading day, and whether the school gets a fat alumni donation that quarter. But I can imagine the public outcry if such a policy were enacted. Parents would sue the school, claiming that they've ruined their kids' chances for getting into a good college.
That's a real problem for people trying to start a company without a lot of cash. If it's to be useful as compensation, equity should be valuable, but it's not because the payout is so uncertain and so far away. Throw in terms that leave multiple opportunities to kiss the whole payoff goodbye just because of life (or worse yet, get screwed over by the IRS), and it's no wonder employees don't particularly value equity.
Typical option agreements are not terribly effective, so you may as well just pay cash unless there is a better way to distribute ownership in today's environment.
It's not a simple problem to solve. Saying "give more equity" doesn't really do it if the problem is that the likelihood of seeing a payout is too small. And making the payout more certain is not easy.
Equity is called compensation but anyone who is working at their second startup should understand that calling that is misleading at best. Since the average tenure at the 'first startup' is about 2 years, consider it a 'masters program' in learning about what is and what is not compensation.
So if you're going to take equity in lieu of cash you need to understand how to compute the expected value of equity. And in early stage companies its almost always zero. In an acqui-hire sort of situation it is zero and your retention package is based entirely how important you are to making the eventual use of the technology successful. Doesn't matter if your a founder or not, if you're not useful you get nothing, if you are you get something.
But lets step back and ask the question again, if "equity" is the deciding factor in your decision as an employee to join a startup, then you are clearly doing it wrong. If you want equity to mean something, join a company that is already publicly traded, then those ISO options or RSU have real dollar value that you can compute using Black-Sholes or any other method. Stock in a pre-series B startup exactly equivalent to the collected wishful thinking of the founders and investors. And all of them know that if they get their money back they will count themselves lucky.
What is broken then is not how we compensate people coming into startups, it is the misconceptions they have about how startups work, and the fundamental fact that "stock in a startup" is even on the list of things they want. All you can ever ask for is interesting work, people that are fun to work with, and enough salary to pay the bills and put money into a 401k. If you have all of those as an employee than any stock you get that happens to become valuable is all bonus.
The realization of the ideal that you can just get a percentage of the company for putting in your time working hard is largely elusive. I think that is the problem to solve. I'm not terribly optimistic there is a way to solve it outside of "don't give as much equity since nobody wants it", but I like to think there are smarter folks out there who can come up with something.
The pay to perform model could work, but that would raise burn quite a lot, which is something startups should be very careful about.
End of the day, options are an imperfect way to incentivize employees, and they work better when both sides are thinking about them right.
Lets consider other scenarios, people buying a lottery ticket. They choose to believe that its possible it will be worth millions but the expectation is that it will be worthless. Do we put up a large explanation about how unlikely it is to win anything in the lottery so that people will stop buying them?
I get that especially young people with little experience will delude themselves into believing a big chunk of equity will mean a big payday later, and take a lower salary to secure a larger chunk. But it isn't that anyone has forced them, they are just inexperienced. They will likely not get any extra benefit and the next job they will negotiate harder on the salary and be less swayed by equity. At some point they might be "cash only" type of people, no equity required.
The biggest problem with stock in my mind is that the investors aren't aligned with the company. The investors want a payout, period. If they can fire everyone and sell off the two patents and get 2x their money back, fine, they will do that. They want the company to be successful so that their investment is worth more, but they don't really care how it is worth more really.
Equity "payouts" haven't changed a whole lot in 30 years. There are an extraordinary number of millionaires and billionaires in the tech industry (compared to other industries) because of the wide and generous distribution of shares. Not everyone is a winner, but nobody really works at only one company either. Five to ten companies is more like it, and often the equity grants from one or more of those companies provides additional financial liquidity to the employees.
I'd agree that first time startup employees are often way more optimistic about their stock than more seasoned employees are, but I have never met anyone who has been through 2 or 3 such companies to have unrealistic expectations any more. That is why I have a hard time seeing what we can do to change it, on the job training is on the job training.
If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup.
If you're a good developer, you can get a better deal by working at an established company and simply investing. This has been true for every startup offer I've ever seen. Ever.
I've considered lots of startup jobs because I believed strongly in the companies. Every single time, however, I was able to get a larger chunk of the company by keeping my current job and simply investing.
To give an example, my current job pays about $250k, and one year, I invested $100k of that into a startup, leaving me with ~$150k of salary. This $150k + startup equity was a better deal than the startup was offering in both salary and equity. Plus, equity bought as an investor is much less tax toxic than equity options received as an employee of a startup.
On the other hand, most people who work at startups aren't interested in money. If that's you, that's totally cool! I wish I could care less sometimes.
Occasionally, after talking to a startup about a potential employment opportunity, I'll ask if I can simply invest. They are usually flattered that someone would be so excited, and they are usually quite happy to take your money.
A final option is to invest in one of these new index funds that track startup performance. E.g., the SharesPost 100.
That's a bold assertion, bolder than "most people who work at startups usually don't get to have competing offers for $250k to pass up"
Also, based on my convsations with literally hundreds of startup engineers, I have seen three trends:
1. They care very little about how much they are getting paid due to being passionate about their work (awesome!)
2. If they do care about money, they are under the false belief that their startup options are worth more than than that startup's investors were willing to pay for them in the secondary market (i.e., the price of a nearby round)
3. They are almost always talented enough to get a high-paying job somewhere else
Are there any other aspects that should be considered?
But you can pour yourself into a company heart and soul, one with options and one without, with exactly the same outcome: Zero. And to a large degree the outcome is not only not under your control, it is often under the control of predatory entities who do not want you to realize any return.
As an employee, get a competitive salary because the chances verge on certainty that those options will be worth zero, no matter how hard you work and no matter how much you think your contributions will move the needle.
The equation is different for honest-true-and-blue founders. But for a worker bee, sure, make a show that options are interesting to you, but don't trade them for cash compensation, it's a bad deal for you.
Acquisition by a publicly traded company.
IPO isn't the only way to obtain liquidity, but what's interesting is just like companies are shunning IPO they are also shunning acquisition.
We don't normally get to know about failed acquisition offers but Snapchat's $3bn offer by Facebook is a great case in point. A few years ago practically no one would have turned down that kind of offer, which would have also created a liquidity event for everyone currently employed at Snapchat. Various factors today mean someone like Evan Siegel was prepared to turn that down.
I'd love to see more discussion about that as much as the IPO market itself.
Every time you see a small company change CEOs you are probably seeing all the employees who have been there since the beginning crammed away into nothingness so the new CEO can get his 6%. The old CEO and execs won't walk away with nothing so it comes out of the share of the rest of the employees.
I can tell when a company I have worked at is going to get a new CEO because I get a notice in the mail telling me that my ownership has been further crammed away into nothingness. This happens months before the actual handoff.
Options at a small company are definitely not in your favor. Options at a pre-IPO company might be a different story, but pre-IPO you can get a real salary and the options just bump your income up a bit.
Interesting things happen after you exercise. From now on I will always exercise one share once I reach the first cliff.
I would also add that with an option position you are most likely giving up a higher salary and the opportunity cost that comes with it.
An extra 30K each year invested at 5% in 5 years is worth more than 200K lump sum in 5 years (200K discounted at 5% for 5 years is $157K).
You also have to factor in the probability of an exit. I just multiply the probability by the expected future amount. So 10% chance of exit in 5 years with a predicted equity position of $1M I would only count it as $100K. Discount it for 5 years and it is even worse: $78K.
Of course you also have to factor in taxes. If you are already in a high bracket and in CA you are going to be paying 9.3 CA + 28 Fed + 6.2 FICA = 43.5%. So more salary is pretty much worth half as much. You might have to worry about AMT as well.
Of course with a capital gains, assuming you exercised more than a year ago (possibly earlier with ISO options) then you will be taxed at only 15%.
But you have also given up that cash and the associated opportunity cost. In effect, instead of a "free" lottery ticket taxed at 43.5% you now bought an expensive lottery ticket, for the option (hehe) of only being taxed at 15%.
I'm on my 3rd startup and have equity in all of them and have yet to see a single penny.
Honestly with tax brackets that high, and the chance of getting any equity so small, I'm more tempted to start a business on the side that can be taxed separately than try for a higher paying job.
The way I pick a company to work at now is more based on what kind of personal and career growth it will offer, and also how much I will like working there.
One of the most attractive things about employee stock options is that the strike price is often set at 30-40% of the valuation of the latest financing round. So a company that just raised (preferred) money at a $500m valuation can give their employees options with strike prices around $200m or less. Therefore, the employee can believe that they have a "locked-in" gain day one.*
If employees sold their common shares at anywhere near fair value at the same time the company was raising the round, they would likely sell at a price between $400m-$500m a very slight discount to the preferred shares. Any future option grants given would have to have a strike price reflective of these recent common-stock transactions, and companies would no longer be able to use the low strike prices of options to attract employees.
Obviously, this is just one trade-off among many and in no way means that companies shouldn't allow more sales of employee common stock over time, but its worth understanding the many reasons companies currently are resistant to doing so as much as individual employees would like.
*Obviously, common shares should be priced at a discount to preferred shares but almost everyone I've talked to in the VC/startup community believes that the 60-70% discount applied is extremely generous as it implies that up 60-70% of the value the VCs investment is in downside protection (ie the debt-like element) rather than upside potential (ie the equity-like element), a pretty nonsensical amount for a high-risk, asset-light VC investment.
And that is where any company, big or small, would lose me. I've been burned too many times by all kinds of people -- from co-worker to VP -- promising to do "everything in their power" to do this or that. Weasel words like those are worth nothing at all.
Everyone would like to think that working their ass off at some start-up increases the chance of being in the big leagues, but I just have never seen it personally happen.
I've spent 15+ years working at small companies/startups, and I have yet to see options that actually resulted in a fraction of what my salary was. I also don't personally know anyone that hit the big time either.
So, do it because you love it and are happy with your current situation, not because you think your going to hit the lottery. I have now twice in my life created products that sold well, and made everyone enough money to live off. But never have I ever even been near a situation where I created a product that made tens of billions. And frankly I don't know anyone who has done that. The few millions a product got sold for here or there, wasn't enough to put even $100k in any single persons pocket.
> the time frame for how public companies think and how they are able to invest has shortened dramatically and correspondently the time frame for how private companies can think has elongated. [1]
> they (investors) tell the public company give us the money back this quarter and they tell the private company "no problem, go for ten years"
After I listened, I wondered why a talented employee would want to stay at private company that is going to take 10+ years to IPO?
[1] - https://soundcloud.com/a16z/a16z-podcast-taking-the-pulse-of...
What part do the increased regulatory requirements for public companies play in this? Might this be one of the unintended consequences of Sarbanes-Oxley?
The Emerging Growth Company Act (EGC) helps this somewhat: companies with < $1b in revenue have less reporting requirements if they file to go public. Most VC-backed companies that do an IPO will leverage this.
Clearly, the benefit of staying private (and still being able to raise $100M+ rounds) outweighs the consequences of illiquidity for employees....at least in the eyes of the founders and management.
Nobody is going public because borrowing is so cheap, resulting in round after round of leveraged private equity. This may change when the Fed starts cranking up interest rates around the end of this year.
Also, the new JOBS act rules for small IPOs are now in effect. So far, nobody seems to have done much with them, but that's now an option for companies at the point they need a follow-on round.
One thing we need to understand is that starups most likely won't have money to pay same amount as their established counter parts. All they have is their vision to sell and that means options must remain critical part of their offerings. If IPOs are fizzling and employees don't get rewarded for the risks they took then ultimately existence of startups itself is at risk.
It's not like the current system stops people from being gamed, but any of these types of systems are bound to be exploited by the "evils". Cartels are formed in the shadows, markets are manipulated. I love the idea of a public market as an official process, but I'm not sure if it can be done without the system becoming polluted.
It's been a while, and I can't find it right now, but somebody once put together an analysis of average employee payout for companies with exits that valued the price of the options above their strike price (meaning they were actually worth something). My memory is hazy, but they found that a tiny fraction of employees managed to make something under $20k per year worked out of their options. And many of them were working under market rates for their services meaning the financial outcome, the years of belt-tightened living, and missed opportunities came out to something like under $10k extra compensation per year worked.
On the flip side, I know from personal experience, you can learn more in startups than in more traditional businesses, and so the experience you gain might be worth more to you over a career than any specific financial compensation.
Basically go into startups as an employee expecting to learn, but don't expect a big pay out. If you get one, count yourself lucky and enjoy.
I realize this is somewhat trolling, but like Benedict Evans joked in the recent a16z podcast on this topic traditionally that's a process called... IPOing.
http://a16z.com/2015/06/17/a16z-podcast-the-rise-of-the-quas...
>The third reason for why individual options are probably worth less now than they used to be is that both employer and employee need to account for the fact that the time until IPO or liquidity is longer than it used to be. This is a big issue. To get the true value of offered comp, employees need to add their offered salary to the present value of the options offered. When calculating that, the further out the payout, the less it is worth today
This assumes a constant payout, which defeats the purpose of options. If there were a set date and set payout, the company should just offer cash bonuses or similar.
The value of an option increases the further the expiration date is [0]. He even says:
>You can be pretty sure that a company currently worth $10mm won't be worth $1b in 3 months, so you have a reasonable band of expectation.
Sure, but it might be in 5 years. You're granted an option as a bet that it might grow that big by the time you cash out - not to lock in some set amount of compensation 3 months from now.
Maybe I'm missing his point. Sure, employee compensation might need to be rethought - but not because options are a bad tool. Companies grant options at an early stage because of the long time horizon and high volatility [1]. That's what makes them valuable. If you want your compensation to be liquid and predictable, you should probably just ask for more cash.
[0] https://en.wikipedia.org/wiki/Option_time_value [1] https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model
> Traditional stock sales are time consuming, expensive, and clutter a company's cap table. Now it's easier: the Equidate contract transfers the economic upside and downside of your shares without actually selling them. It honors all exisiting transfer restrictions on your stock, and your identity is kept private throughout the entire process.
> The contracts Equidate has designed have aspects similar to both a derivative contract and a asset-backed loan. The result allows an investor to purchase the rights now to the economic upside/downside of a share now, without going through the complications of adding additional shareholders to the company's cap table or the hassles of a secondary stock transaction, postponing any transfer of shares until the company is ready.
With RSUs, you are rewarded for meeting high expectations. With options, you are only rewarded if you dramatically beat already very high expectations.
Not sure that this is the best opening argument here. With things like the JOBS Act passing, Reg A+ and such getting off the ground, my hypothesis is that we'll see an acceleration in the rate at which companies are able to get to the IPO stage. If anything, in the short / near-term future, we'll see an increase in value of paper. The whole point of offering equity to shareholders and stakeholders is to have people (ownership theory) who are rooting for and/or willing to work toward group success.
The problem, of course, is that executives at far too many companies use equity like a dangling carrot... demanding more than reasonable time for even a basic ROI for the people whose risks are the riskiest (early employees).
1) The company could offer to buy back options at market rate.
2) The company's current investors could offer to buy equity from employees. The majority of investors returns come from a small number of portfolio companies, for those companies that are doing well the investors want a bigger stake even if it comes in as secondary.
3) Companies could appoint designated investors who could buy secondary stock from employees. Successful companies typically have over-subscribed rounds, companies could allow those investors who they like but couldn't get into the round to buy employee stock.
The general reason (2) and (3) don't happen is that individual employees don't have that much stock and the overhead involved makes it not worthwhile. But potentially there could be a solution which involves bundling together stock into meaningful amounts.
With a mortgage, you're buying a present house with your future income. Presumably because you cannot afford to pay for it in cash right now.
With options, the startup is compensating you for your present work with a future share of ownership of the company you're helping to build. Presumably because it cannot afford the risk of accepting the fixed expense of your salary right now.
It's hard to tell whether the author is right that the current compensation structure needs to change. The real question is: are there potential employees around the labour market who accept the risk and prefer the potentially large future bounty over fixed income at present?
How many VC backed startups get to that sort of valuation without going public? At the $1bn mark, globally, there are 98[1]. I imagine it's possible there are 50 times that number at $0.5bn, but that's still a pretty small number out of all the startups there are. To fix compensation we need things that are going to move the needle even for relatively small companies.
Does anyone have experience with this approach?
Firstly, the market for technical talent is so competitive right now, that cash is an easy way to compete for people and salaries have been driven up.
More importantly, people have become far more sophisticated about options and what a payoff is likely to look like. Ten years ago I would never be asked a question like "how many shares are there outstanding on a fully diluted basis" but now I hear it essentially all the time.
edit: grammar
Why is it that this is never an option (pun intended)?
This.
It's like saying, I'll take your low pay + stocks but you will also be risking that I start making more money on my own and leave.
And this company was above average in not pulling dirty tricks.
This is not likely to happen though because the company is going to be focused on growth and then an exit and they can't grow as fast if they are paying out their profits instead of reinvesting them.
So why are you even working at that company to begin with?
Is it because people are fatigued by having their options amount to nothing?
I owned stock in a company that will, very likely, never go public or get acquired. It doesn't need to. Because of the shareholder agreements, I could only really sell back to the company. Sometimes they were amenable to buying, other times they weren't. Essentially, I was playing in a monopoly market, except the monopoly was on the buyers side. Fortunately for me, the majority owners were much more generous than they needed to be. Without that, I wouldn't have been able to make anything from the stock.
There are numerous tax pitfalls along the way were you can get absolutely ruined if you do it wrong. Exercising options can very easily become a non-trivial investment in actual cash.
None of these details are particularly predictable when you start out.
Ownership is ownership, but details matter. There is a long way between signing an options agreement and true ownership, liquid or otherwise. The longer that path, the less certain the payoff, and the less valuable the options.
There's no space in the middle of "worthless" ;)
This is different from an asset which has zero value. Some economists enjoy the wordplay of "worth less" (first meaning) vs "worthless" (second meaning)
In this instance, it looks like the article is describing how increasing controls further devalues the options.
Edit: For instance, if the company decides on each attempt if you're allowed to exercise the option, you might value it at 25% of the stock price, or lower. Even moreso, you can't be certain that the company will still exist when your options can be traded for cash, which should devalue the options even more in your perspective.
It should be the net same as if you're working for someone, and they paid you with an IOU for 1% of the money they might win from a lottery ticket. So the value might be infinitesimally small, but not zero.
To the extent that this is a problem for founders/owners, it's largely of their own making. It seems like it should be easy enough to correct if they want to, but they will have to give up many if not all of the wildly favorable (to them) terms and/or give up more equity to their employees to do it. The alternatives all involve paying more cash, which is probably the right answer for everyone anyway; it's disappointing that the author didn't even seriously discuss the possibility of simply paying higher salaries in lieu of equity. Apparently that's simply taboo.
I have, for twenty years, used stock option agreements as a cheap alternative to toilet paper. I was talking with a friend who says he knows one guy that cashed in $8k worth one time. I prefer a bonus plan or profit sharing.
But the original response to my original comment was informative.
I think most people would like that, but options can be created out of thin air, while money cannot.
No. It was bemoaning how stock options offered to employees by a corporation might, might, be "worth less" when restricted sale is applicable.
Just so we are all on the same page, here is the definition of "stock option" as provided by Merriam-Webster:
> 2 : a right granted by a corporation to officers or employees as a form of compensation that allows purchase of corporate stock at a fixed price usually within a specified period (source: http://www.merriam-webster.com/dictionary/stock%20option)
The article then went into great depth skillfully supporting the author's thesis, done from the perspective of a partner at Y Combinator. All well and good, but what wages do "other people" make?
According to here:
http://www.census.gov/newsroom/releases/archives/income_weal...
The median household income in 2010 was $49,445 USD. The census does not mention stock options, though I think it reasonable to assume most US workers do not receive such consideration.
Within this thread, "MCRed" shared their experience with stock options:
> Over many years as an employee for startups, I was employee number 24 of a $30M cash acquisition exit. The result was 6 figures, but just. Effectively it was a year's salary.
Since "MCRed" states the options were worth "a year's salary", it is safe to state that "MCRed" made at least $100,000 USD per year.
And "varelse" writes:
> Given that a seasoned and in-demand engineer can make anywhere from $250K to $500K annually working for a big co, without a 3-letter title and 3-letter title equity, there seems little incentive to accept $150K or less and ~0.5% or less equity.
All of this leads to this simple, direct, question: how much do you think people outside of "tech" make in their jobs? Based on the median household income quoted above, the likelyhood is 1/5 to 1/10 what "varelse" estimates (which I think is high nationwide) and minimally 1/2 what "MCRed" was once given above and beyond a paycheck for at least the same amount.
We, all of us in tech, need a reality check. There are literally millions of people in the US along (not including 6.5+ billion other people in the world) which do not come close to "just" the base salary many of us enjoy. And before anyone says "but the market demand...", I say be honest with yourself.
And yet many are boo-hoo'ing over "gee, I didn't get Even More(TM)!"
I tell ya what. Stop by the Walgreen's on Market and 9th (IIRC) in San Francisco and ask someone working there whether or not their stock options offerred to them when hired was worth it for making $50,000 USD less per year. For bonus points, present the same question to the Uber driver dropping you off.
PS: "MCRed" and "varelse" are only two representative examples. Other statements in this thread would serve equally well and I bear no malice toward either "MCRed" or "varelse."
You're not going to convince people that they should except peanuts from a multi-billion dollar industry because "there are starving children in Africa(TM)." That's not a progressive argument.
The commentary is meant for all, which is why I posted it on its own and not in response to a particular person. This is also why I said "'MCRed' and 'varelse' are only two representative examples. Other statements in this thread would serve equally well and I bear no malice toward either 'MCRed' or 'varelse.'"
My intent was to give a different perspective to a person reading it.
> If your company is making absurd profits, you should be tap into it as an employee.
No, a company which employs a person agrees to remunerate the employee at the rate agreed upon by both parties. The amount of profit a company makes is only relevant to this in the context of how long the employee's check(s) will cash.
> You're not going to convince people that they should except peanuts from a multi-billion dollar industry because "there are starving children in Africa(TM)." That's not a progressive argument.
This is a straw man[1] as I said nothing about convincing people to accept "peanuts from a multi-billion dollar industry." What I did say is that people in tech (myself included) need to have perspective that not everyone makes the kind of money we make. Ignoring this leads to situations such as the rally in SoMa last month entitled "evict techies" and other similar expressions of resentment.
Feel free to ignore this perspective, me, or anything anyone else says or does. It matters not to me. Based on the reception my original post has received, it looks like I need to learn to do the same.
In addition to you taking the risk of that option, even in the most optimistic outcomes for the company, your shares could have been watered down in various ways.
You could work for a startup for a year and get fired early on and receive no options.
The whole thing is a employees getting ripped off. We keep telling ourselves there's a rose garden after we get X.
I recommend the book "How to stop worrying and start living" by Dale Carnegie.
Companies won't start offering it until workers stop accepting it.
A similar parallel is the gaming industry.