10-Year Exercise Periods Make Sense • Hacker News Board

Re: 10-Year Exercise Periods Make Sense

#111

Post by niels_olson » Tue, Jun 28, 2016, 2:21 AM UTC

CyrusL wrote: post #7

ergothus wrote: post #4

I followed this link expecting to see a comment about some sort of "encoding" of the human body relating to long-but-not-indefinite period of physical exercise. Instead it's about stock options. As the article offered no background, I'm lost as to what is being discussed. In the last 20 years I've never had the same employer for 10 years, so can someone ELI5 what is being discussed? Thanks in advance!

If a company grants you stock options as part of your compensation, you need still need to pay to get the stock. That's called exercising the options. If you leave the company, there is a limited window of time to exercise the option. If you don't exercise it, the stock gets returned back to the company. This post is favoring that window being long and is responding to blog post favoring that window being short.

So the white-shoe Sand Hill Road crowd is averse to having a potentially large long term liability if things go awesome. This is some bold, 19th century robber baron stuff. Wow.

Re: 10-Year Exercise Periods Make Sense

#112

Post by rconti » Tue, Jun 28, 2016, 2:29 AM UTC

ryandrake wrote: post #87

rconti wrote: post #84

Earlier quoted context omitted.

Yes. I'd say easily 3-5%.

Quite honestly that would shock me, but I wouldn't know where to get data about this. I always believed that only a microscopic fraction of tech workers actually made off with more than a year or so of salary from options (but those who did likely made out extraordinarily well). I would not expect a very flat distribution.

I think it's more the opposite. Lots of employees just pulling a salary and another chunk on the side from periodic grant refreshes (you often hear folks talk here of, say, $50k of grants per year as part of comp).. versus a very small handful of millionaires.

The Googles and Apples and Facebooks of the Valley employ a lot of people vs the (granted, numerous) small moonshot startups.

Re: 10-Year Exercise Periods Make Sense

#113

Post by cloudjacker » Tue, Jun 28, 2016, 2:49 AM UTC

Man Silicon Valley companies are living in a parallel dimension!

They collectively think they have the LUXURY to hire employees that are in love with their random idea

And they collectively think that the employees have the LUXURY to play russian roulette with the compensation terms

Let's address that, because these factors have are completely disjointed with the success of the company and the employees' INTEGRITY (instead of "aligned incentive") to deliver amazing products and code

Re: 10-Year Exercise Periods Make Sense

#114

Post by Jormundir » Tue, Jun 28, 2016, 2:51 AM UTC

argonaut wrote: post #106

morgante wrote: post #105

Earlier quoted context omitted.

> So I seriously doubt they block companies from doing extended exercise windows. You're right that they don't veto companies from doing extended exercise windows. That doesn't mean they don't oppose them and argue against them. This post makes their viewpoint quite clear, and it means that any founder wanting to do right by employees will have to argue strongly for that position. Even beyond the specific issue, the…

Yes, a founder giving some reasons for wanting to do something is not a high barrier to overcome.

And your argument degenerated to stupidity. Do you think there's no difference in effort it takes to do well for your employees when you have to argue with an employee unfriendly person on your board, rather than having employee neutral or employee friendly people on your board? What you said is not grounded in reality, and this topic is super important for people considering different employers.

Re: 10-Year Exercise Periods Make Sense

#115

Post by argonaut » Tue, Jun 28, 2016, 2:58 AM UTC

Jormundir wrote: post #114

argonaut wrote: post #106

Earlier quoted context omitted.

Yes, a founder giving some reasons for wanting to do something is not a high barrier to overcome.

And your argument degenerated to stupidity. Do you think there's no difference in effort it takes to do well for your employees when you have to argue with an employee unfriendly person on your board, rather than having employee neutral or employee friendly people on your board? What you said is not grounded in reality, and this topic is super important for people considering different employers.

Your argument is the one that has degenerated into name-calling. Mine hasn't.

Founders routinely ignore the advice of board members. In fact it's almost a meme in the startup community for founders to politely listen to, and then ignore, their VC's advice. This is no different.

Re: 10-Year Exercise Periods Make Sense

#116

Post by abalone » Tue, Jun 28, 2016, 3:02 AM UTC

dangelo wrote: post #18

abalone wrote: post #14

I agree with this, but what do you guys think about minimum service periods? Like requiring 2 or 3 years? Companies like Pinterest and Coinbase have added that condition.[1] Greater portability could in theory lead to higher turnover even among happy employees. They might go on to found their own company sooner. They might see good financial sense in diversifying their options portfolio. Yet young companies need the…

At Quora we decided not to have a higher "minimum service period" aside from the standard 1 year cliff. The rationale is that the vesting cliff is what everyone is expecting as the minimum. If a company wants to have a higher period before someone can leave and retain their stock, they should just increase the cliff to that length of time to make it fully transparent.

That's a fair point, but cliffs are more severe than exercise windows. Many employees still get to keep some of their equity in a 90 day exit window scenario. I think Kupor modeled it at about a third of vested shares on average.[1]

More mature startups may be able to simply abolish the long-term incentive that the 90 day window provides, but I suspect younger ([1] (Although there's certainly unfair variability based on personal financial circumstances in that average.)

Re: 10-Year Exercise Periods Make Sense

#117

Post by wpietri » Tue, Jun 28, 2016, 3:05 AM UTC

argonaut wrote: post #72

danielweber wrote: post #70

Earlier quoted context omitted.

Yes, the standard contract is completely opaque to the employee, and they don't have the specialized knowledge required to understand it. And the company sure isn't going to help you. So value the funny-money at 0. If the industry wants to change this perception, then there should be a widespread standardization on a contract that is fair to the employees and it should be easy for employees to understand any diffs fr…

If a contract is opaque to you, you get a lawyer to look it over. End of story. If you sign a contract that is opaque to you, without talking to a lawyer or at least someone knowledgeable (e.g. personal friends that are senior engineers that have talked to lawyers), you only have yourself to blame, not Silicon Valley. It goes without saying that I've rarely found the contracts I've signed to be opaque.

I find this sort of burden-shifting abhorrent.

It's the company who will spend thousand or tens of thousands of dollars having the contract made. It's the company who gets to amortize the costs of a complicated contract over many hiring interactions. It's the company who has the advantage of a strong information and experience asymmetry.

In short, the company has a lot more power. If somebody with power screws somebody without, I save most of my blame for the people who set things up.

Re: 10-Year Exercise Periods Make Sense

#118

Post by wpietri » Tue, Jun 28, 2016, 3:09 AM UTC

a_small_island wrote: post #12

>"He suggests paying 50% above market in stock, but including a clause that all employees must remain at the company until a liquidity event or else they cannot keep any stock at all (even if they could come up with the exercise cost)." Curious to what feelings this invokes for startup employees (nonfounders, investors) on HN.

In my case, wild laughter.

Re: 10-Year Exercise Periods Make Sense

#119

Post by chasing » Tue, Jun 28, 2016, 3:13 AM UTC

argonaut wrote: post #101

ryandrake wrote: post #87

Earlier quoted context omitted.

Quite honestly that would shock me, but I wouldn't know where to get data about this. I always believed that only a microscopic fraction of tech workers actually made off with more than a year or so of salary from options (but those who did likely made out extraordinarily well). I would not expect a very flat distribution.

Every time any tech company goes IPO or gets acquired for a large number (~>$50M), that's on average 1,000+ engineers who probably made some amount of money from options.

These numbers don't make sense to me.

You're saying an average tech company that exits has over 1000 engineers alone? Certainly a $50M company can't support 1000 engineers. Or a $100M one.

(And, just for fun, if a co exited at $1B with 1000 engineers... Let's use round numbers to sketch it out. Let's say the engineers alone get 10% of that value (which seems generous). That's $100M. Divided amongst 1000. So $100K. Not that much if you've given up income for years! Even if that amount is split across 100 engineers, $1M's not necessarily a super-duper return on investment if you're taking a bit pay hit.)

Re: 10-Year Exercise Periods Make Sense

#120

Post by zzleeper » Tue, Jun 28, 2016, 3:17 AM UTC

jerf wrote: post #16

american158931 wrote: post #5

Earlier quoted context omitted.

What's your opinion on how an employee should deal with a founder who clearly believes more in the A16Z stance on stock options more than the Adam's? Apart from obvious knee-jerk reactions like "stop working there." Obviously it's in the founder's financial best interest (at least on the very surface level) for employees to not have the option to leave the company with shares at all. It is just lost money, from their…

"What's your opinion on how an employee should deal with a founder who clearly believes more in the A16Z stance on stock options more than the Adam's?" Value the options at zero and take appropriate steps. It may not be the statistical expected result, but it is the modal outcome anyhow. "Appropriate steps" isn't just "quit". If you're happy with the cash salary than you don't have a problem, for instance, or the exp…

Yours is the most reasonable answer and I wish more engineers understood this. As long as there is a nontrivial fraction of engineers that don't, then startups can take advantage of these ridiculous vesting periods and terms.