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Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

nytimes.com

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Re: Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

#11

Post by pmiller2 »

bane wrote: post #9

This sounds like a company in big trouble and trying desperately to stem attrition and improve tanking morale. According to crunchbase they're basically owned by a private equity firm now (which is rarely a fun place to be) and are raising something like a billion dollars a year -- which basically appears to be around what their operating costs are (employee count of that year * $250k/yr). They're either not bringing…

Anybody who thinks this offer is meant to benefit employees isn't looking much beyond the surface. The fact that it includes a release of claims, a noncompete clause, and an NDA is a solid clue that this move is intended to benefit Palantir and not employees.

Edit: forgot noncompete clause.

Re: Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

#12

Post by codys »

jasonthevillain wrote: post #4

> It also makes them agree to a nondisclosure arrangement that forbids them from even talking about the repurchase and waive any claims they might have against the company. And the offer extends to some but not all former employees. That smells funny and oddly specific.

Indeed. I'd be curious which employees (if any) were included, and why.

Re: Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

#15

Post by honkhonkpants »

curiousDog wrote: post #13

They should still get props for the rate at which they were able to recruit from Stanf/MIT/Princeton etc.

Why should they "get props" for duping graduates into wasting time joining their flailing business? That sounds like a trick, not a benefit.

Re: Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

#16

Post by curiousDog »

honkhonkpants wrote: post #15
curiousDog wrote: post #13

They should still get props for the rate at which they were able to recruit from Stanf/MIT/Princeton etc.

Why should they "get props" for duping graduates into wasting time joining their flailing business? That sounds like a trick, not a benefit.

Well yeah, you should be incredibly smart to trick the smartest graduates in the country to dedicate their lives to your so called "mission" :P. You should read some of the answers from their Director of Engineering, so incredibly cheesy.

Re: Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

#18

Post by _9vpl »

pmiller2 wrote: post #11
bane wrote: post #9

This sounds like a company in big trouble and trying desperately to stem attrition and improve tanking morale. According to crunchbase they're basically owned by a private equity firm now (which is rarely a fun place to be) and are raising something like a billion dollars a year -- which basically appears to be around what their operating costs are (employee count of that year * $250k/yr). They're either not bringing…

Anybody who thinks this offer is meant to benefit employees isn't looking much beyond the surface. The fact that it includes a release of claims, a noncompete clause, and an NDA is a solid clue that this move is intended to benefit Palantir and not employees. Edit: forgot noncompete clause.

That's all standard stuff. If I was at a company for 11 years, I'd sure as hell want to cash out. Whether their offer is a good price or not, who knows.

Re: Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

#19

Post by gonehome »

Comments on this thread are not very interesting and generally off topic. This article points out an issue in SV which is that it's hard for employees to get value out of options held in companies that do not go public.

One reason for this not mentioned in the article is that in the US the tax burden is extreme - partially because when it was implemented it expected companies to go public.

If you hold options in a private company you get taxed on the exercise of those options based on the fair market spread which is the difference in price between your original strike price (the price of the options when they were granted to you) and the current fair market valuation. This is taxed as income.

This is problematic since once exercised you're holding shares of an illiquid asset (since the company is not public) and they're difficult to sell. This means even if you save up enough money to exercise your options you'll get hit with a potentially enormous tax bill due that year that you can't easily sell your newly exercised options to pay for. Additionally when you sell the actual shares after you've exercised them you get taxed again on the sale.

The one exception to this is if your options are ISOs (incentive stock options) then the delta between the strike price and the fair market value isn't taxed immediately, but it does count towards AMT (Alternative Minimum Tax) and it's fairly easy to hit the AMT while exercising options (meaning you could only exercise a tiny amount per year tax free).

All of these things make it extremely difficult to realize any value in a private company without enormous amounts of upfront cash and also losing roughly half to taxes. It also makes it extremely difficult to exercise options outside of a liquidity event. This can also make it hard to leave a company since the agreements are often 90 days to exercise after leaving or you lose your options (there's also usually a ten year expiration date).

If companies in SV intend to stay private and don't want their employees to view the options as impossible to liquidate we'll probably see an uptick in liquidity events like this one. The companies that value their employees will probably figure out a way to make this work.

Re: Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

#20

Post by jegutman »

sverige wrote: post #6
birken wrote: post #2

Boy this article is a very friendly interpretation of Scott Kupor's blog post. From NYTimes: > He [Scott Kupor] also suggests a longer period for employees to exercise options after they leave, up to 10 years. That figure is endorsed by Y Combinator in an argument that any lesser period is unfair to employees. Makes it seem like Scott Kupor is on the leading edge of caring about employees, in agreement with YC (which…

Indeed it is. I particularly like the 'no longer contributing to the business' part, as if the work done by the original employees isn't what the current business was built on, at a discounted rate if their stock options are worthless. And as if the stock options were the only reason they're having trouble attracting quality talent. Stock options seem attractive as a form of compensation, since the hope is that you'r…

I actually disagree with the 10yr time frame (although will admit it has its merits), but also agree with some of your logic. I just think that the 10yr "fix" solves some problems and creates others. I think this issue is that you should: A) not rob former employees of accrued stock value B) probably try to somewhat reduce incentives to leave if the company is going to continue to do well

There are a few problems I see here: 1) stock option grants are completely arbitrary and sometimes end up very wrong 2) it's hard to fix that in the future because you'll end up at a higher strike price 3) end up being expensive and tax inefficient to exercise

The closest I've seen to people who seem to get this and have sensible solutions are Andrew Mason at Detour (progressive equity) and Dustin Moskovitz at Asana (larger grants, but back loaded into years 4-6).

I have great respect for Adam D'Angelo at Quora for suggesting a solution to the problem, have known him in school he's certainly smarter than me on almost every axis of intelligence, but I think there are other potentially creative solutions that might be better (although I don't know tax compliance).

For example I think you could keep the status quo, but offer the option for employees to exchange their options for shares (white meat) at the time they can exercise. Example you have options for 100 shares at a strike price of $50, at the time you leave the shares are worth $100, instead of having to come up with $5000, you just get $50 shares free and clear. I think there's still a tax hit issue, but at least it's not doubled with paying for the shares.

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