Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Handcuffed to Uber

techcrunch.com

Post reply on HN
Print view View original

161–170 of 211 posts

Re: Handcuffed to Uber

#161

Post by caseysoftware »

cplease wrote: post #151
redshirtrob wrote: post #99

Earlier quoted context omitted.

Sam Altman has commented on this before. Among other things, he advocates for much longer (10 years) exercise periods for equity grants.[0] He also discusses the need for a change in tax treatment by the IRS. One of the fundamental issues is how options are taxed. Should you exercise an option, you will need to pay taxes on the spread (delta of strike price and current FMV, i.e. latest 409A valuation). In many cases,…

If the spread is nonexistent, why exercise at all? Why not just dump your money in an index fund?

I early exercised at Twilio when the spread was pretty small.

The key is that you pay taxes on that spread. If you're early enough - I was roughly #25 - and do it early in your tenure, then you only have to come up with the cash to buy the shares and a minor tax bill. If I had waited until I left to execute, the spread would have been 12-15x. I know a few people who stayed 4 years to fully vest and then executed. I don't know detailed numbers but it sounded painful.

If/when Twilio eventually IPOs, then the ROI will be far better than any index fund.

(I don't know anything about the "if/when" as I haven't been inside in over 2 years.)

Re: Handcuffed to Uber

#162

Post by jbrukh »

neilk wrote: post #145
jbrukh wrote: post #132

Earlier quoted context omitted.

Sorry, my fault for not being clear. I didn't mean that digital equity would empower employees to circumvent company policies. Rather digital equity and governance systems [1] that are currently being built around blockchain and decentralized projects simply take a much more egalitarian and healthy approach to distributing ownership in the first place. And, hey, if you want to use equity as an incentive for retaining…

Okay, let's assume that a smart contract with a particular blockchain is going to remain viable and secure for an entire decade. The issue here is taxation before gains are realized. Are you assuming the government isn't going to tax you, just because it's a smart contract?

(1) Okay, let's assume that. It's not exactly an outrageous assumption -- Bitcoin has been operating for 7 years. Ethereum has been around for 1 year, but even if it fails, there will be other smart contract platforms perhaps even on the Bitcoin chain (i.e. Rootstock).

(2) Sorry, not following you. I never said or implied anything of the sort. I don't see how that's a central issue to our discussion, but perhaps you can educate me.

Re: Handcuffed to Uber

#163

Post by URSpider94 »

schrodinger wrote: post #155
ismail wrote: post #154

I am not familiar with american tax law, why do you need to pay tax on buying share options? The reasoning behind this law? We have capital gains tax which i believe is only taxed on sale of the shares.

When you exercise an option, you are paying the strike price for something that may be worth more. For example, you may have an option with a strike price of $1, but the shares are currently worth $10. That $9 is considered taxable income.

That's not quite right. It's not taxable income, per se, but it is figured into calculating the alternative minimum tax (AMT).

Re: Handcuffed to Uber

#164

Post by phamilton »

hkmurakami wrote: post #87
zwily wrote: post #68

Earlier quoted context omitted.

I heard that Pinterest has to issue NQOs instead of ISOs to do this. If that's the case, they come with their own potential downsides.

ISOs convert to NQOs once a certain amount of time has passed after leaving the organization, so there's not much difference there. Having ISOs matters most when the underlying shares are illiquid, and you can defer the tax obligation until a sale event (provided you don't hit AMT). When you have a 7-10 year exercise window, the company will likely have IPO'ed or have failed. The tax benefit of ISOs are greatly dimin…

> Provided you don't hit AMT

I think people downplay how easy it is to hit AMT. A single, no dependents, standard deduction filer making $120k will hit AMT after $26k of on paper gain for ISO exercise. Everything after that will be taxable. Filing jointly, 2 people who each earn $120k can absorb $18k in on paper gains from exercising ISOs. Add in a kid and it drops to $15k.

That's a paltry sum, basically breaking any advantage ISOs provide.

Re: Handcuffed to Uber

#165

Post by URSpider94 »

DannyBee wrote: post #131
URSpider94 wrote: post #96

Earlier quoted context omitted.

But if Uber isn't yet public, and won't allow a market in its shares, who would one sell the shares TO to cover the tax?

RSU's are only restricted until vest. Once they vest, they are unrestricted stock. Uber cannot control what you do with that stock (or at least, i'm not familiar with any company that has done so, and not sure that it's legal to do so)

As long as they are private, they can put lots of restrictions on what can be done with shares. That's the point of the whole article. Ultimately, people are allowed to exercise their ISO's and turn them into shares, they just can't do anything with those shares -- Uber won't buy them, and won't allow you to sell them to anyone else!

I think the sibling post answered the question -- RSU's don't vest until the company goes public. So, instead of getting illiquid comp, you just get none until Uber is public.

Re: Handcuffed to Uber

#166

Post by kevinastone »

xenadu02 wrote: post #148
throwaway45589 wrote: post #133

Earlier quoted context omitted.

Uber pays entry-level software engineers ~$110k [0], experienced engineers closer to $130k. According to Glassdoor this is in the same ballpark as Facebook, Google, Twitter, etc [1]. You are not really making the startup "worse salary but potential equity" trade by working there, when the straight-out-of-college salaries are similar to the averages across all of Google. [0] https://www.glassdoor.com/Salary/Uber-Softw…

130k for experienced engineers is very low by SF standards. That's average for senior positions in Dallas. 150k is the bare minimum for a senior dev unless you're getting a boatload of founders shares in a very early startup. Google, Apple, and Facebook pay more. A lot more just in salary, more like 180-200k before options/RSUs.

I work at one of those major tech companies and we've been out-bid by Uber pretty frequently. Uber pays well above market here in SF.

Re: Handcuffed to Uber

#167

Post by phamilton »

mhartl wrote: post #139

What happens if someone is fired? Surely they wouldn't have to exercise their options then, but it also seems ridiculous that they would lose them.

As someone who has been fired and given 90 days to cough up a few grand to exercise, it sucks. Unplanned change of employment is a turbulent financial event and the last thing you can wrap your head around is whether the lottery ticket is worth it. Add in the feeling of distrust that often follows getting fired and it's really hard to objectively evaluate the company and its position.

I ended up not exercising. Still not sure if it was the right call.

Re: Handcuffed to Uber

#168

Post by jamra »

prklmn wrote: post #157
xiaoma wrote: post #75

Earlier quoted context omitted.

You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes. Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work , that com…

This behavior is absolutely ethical. They have done some work, not all the work as you have implied. Part of the basis of paying employees with options is so that they stick around - early employees know this when excepting this form of payment. This is the small price they are paying for getting rich later.

It's not a small price and it's not made clear in the beginning when they promise shares for service. The absurdity of allowing management to make slaves of men is no small thing.

Re: Handcuffed to Uber

#169

Post by dnautics »

prklmn wrote: post #157
xiaoma wrote: post #75

Earlier quoted context omitted.

You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes. Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work , that com…

This behavior is absolutely ethical. They have done some work, not all the work as you have implied. Part of the basis of paying employees with options is so that they stick around - early employees know this when excepting this form of payment. This is the small price they are paying for getting rich later.

that's not the unethical part. The unethical part is that exercising the options is a nontrivially confusing, in part, because of the legal and tax ramifications... And the startups don't complain too much because if the employee doesn't take part in the equity sharing scheme (often because of decision paralysis resulting) it is to their benefit.

The unethical part is that the startup uses the equity to lure the employee, but fails to adequately warn them about the trickiness coming down the pike when that time comes.

Re: Handcuffed to Uber

#170

Post by ubernostrum »

yummyfajitas wrote: post #86
gamblor956 wrote: post #71

Earlier quoted context omitted.

The problem isn't just in startups with stock options; another big place it arises is closely held businesses. You receive the family business as an inheritance and suddenly you need to pay - in cash - 40% of the value of the business. Such a large cash hit can and does destroy many companies. Not true at all. For the last year for which data is available, 2013, only 20 inheritances of a small business were subject t…

Your citation gets that number solely by defining "small business" extremely narrowly and in such a way as to mostly exclude businesses affected by estate taxes.

Well, let's have fun with the words you chose. Hobby Lobby is famously a "closely-held family business"... and it has 23,000 employees and $3.3bn in annual revenue. I'm not going to lose sleep over that being subject to taxation, and though someone could spin it as "mom and pop's family crafts store", it would be disingenuous to do so.
Post reply on HN