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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

#31

Post by honkhonkpants »

gonehome wrote: post #19

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 pr…

If you exercise shares in a dark market why don't you just mark them at zero? If they aren't trading you can just make up the price and that goes for any good not just shares of companies.

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

#32

Post by stale2002 »

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.

Yeah, CMU grad here. My impression of Palantir is that they hire the top 1% of developers and pay them what a 50 percentile developer would make.

If you ever get a palantir job offer, you'd be better off just forwarding it to Uber, or Google or FB, and waiting for them to give you a 50% increased counteroffer on the spot.

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

#33

Post by gonehome »

honkhonkpants wrote: post #31
gonehome wrote: post #19

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 pr…

If you exercise shares in a dark market why don't you just mark them at zero? If they aren't trading you can just make up the price and that goes for any good not just shares of companies.

Just because a company isn't public doesn't make it a 'dark market' (not sure what that is).

The 409A valuations are real and there are rules surrounding how exercise happens. You can't just sell them outside of that and not pay taxes. You could theoretically sell the shares once exercised to some other private investor if you can find one, but you'd still have to follow the same exercise rules.

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

#34

Post by jonathankoren »

gonehome wrote: post #19

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 pr…

Yeah, the ISO spread with the AMT is bullshit that basically keeps the plebes in their place by not actually letting them get any windfall. However it seems like the real problem is exercising post-IPO. In the post-IPO world, you're dealing with say a 5x to 10x spread, possibly even more. In the pre-IPO world, your spread is probably 2x at most, which is much more manageable.

One clarification with what you said, is that with the AMT ISO exercise is that you're not actually taxed on both the exercise and the sell. What's actually going on is that you're prepaying your taxes when you sell the stock. When you sell the shares, you'll only have to pay the taxes (either regular income or capital gains) based on the difference of the fair market value of the stock when exercised and when sold. If it went up, and you sold in less than year from exercise or less than 2 years from ISO grant, then it's regular income, otherwise it's capital gains. So you could actually get a tax refund when you sell. (Same is true if the market price actually declined between exercise and sell.)

The argument is that when you exercise, you received something of value for less than market and so you made money, but in reality you actually haven't realized any gains, and actually are at cash loss. I understand the argument, but I don't agree with it, because you did not actually realize any gain.

FWIW, San Jose's congresswoman Zoe Lofgren has repeatedly tried to fix the AMT and ISO taxation, but hasn't had much success.[0]

Where I disagree with you is thinking that private companies are going to "figure out a way to make this work" in a way that's beneficial for workers. I'm sorry, but I've never seen high finance work out for workers. It's basically a play for the financially desperate. It's no better than selling you shares on sharespost or something. If it's illiquid market, you're never going to get full value, and you know damn well those that are buying are going to expect a few multiples in gain. They can just wait a bit longer. Workers on the other hand, are busy trying to scrape together a down payment on a $2,000,000 shack in the valley.

[0] https://lofgren.house.gov/news/documentsingle.aspx?DocumentI...

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

#36

Post by freditup »

stale2002 wrote: post #32
honkhonkpants wrote: post #15

Earlier quoted context omitted.

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

Yeah, CMU grad here. My impression of Palantir is that they hire the top 1% of developers and pay them what a 50 percentile developer would make. If you ever get a palantir job offer, you'd be better off just forwarding it to Uber, or Google or FB, and waiting for them to give you a 50% increased counteroffer on the spot.

Curious what your estimate of a 50th and a 99th percentile developer salary is for a new grad? And do you mean a 50th percentile CMU grad, or a 50th percentile CMU grad developer, or just overall?

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

#37

Post by gonehome »

jonathankoren wrote: post #34
gonehome wrote: post #19

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 pr…

Yeah, the ISO spread with the AMT is bullshit that basically keeps the plebes in their place by not actually letting them get any windfall. However it seems like the real problem is exercising post-IPO. In the post-IPO world, you're dealing with say a 5x to 10x spread, possibly even more. In the pre-IPO world, your spread is probably 2x at most, which is much more manageable. One clarification with what you said, is…

Thanks for the clarification about post exercise selling of shares (that you're taxed on the difference between exercise price and sale price).

I agree the argument that you make money on exercise doesn't make sense - especially since the company could easily crash afterwards and you can still get stuck with a huge tax bill for value you never actually realized (except on paper).

Agreed you won't get full value, but I think the existence of liquidity events like this one is an example of private companies "figuring out a way to make this work". They're letting employees realize some value from their equity.

Nothing can be done about the 2 million dollar shack in the valley though (unfortunately).

One other option sometimes available that I didn't mention is filing an 83b election with the IRS and exercising options early before they've vested and before there's a fair market spread. You can avoid taxes this way, but you're putting money at risk very early and often you're not able to do this anyway (there are rules about early exercise).

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

#38

Post by trungonnews »

jonathankoren wrote: post #34
gonehome wrote: post #19

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 pr…

Yeah, the ISO spread with the AMT is bullshit that basically keeps the plebes in their place by not actually letting them get any windfall. However it seems like the real problem is exercising post-IPO. In the post-IPO world, you're dealing with say a 5x to 10x spread, possibly even more. In the pre-IPO world, your spread is probably 2x at most, which is much more manageable. One clarification with what you said, is…

What happen if the company goes bankrupt? What happen to the prepaid taxes on the ISO spread?

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

#39

Post by francoisLabonte »

What nobody talks about is the very good reason why employers give only 90 days after leaving a company to exercise options is that there is also a tax liability to the company for an employee exercising an option. Usually employer has to pay employment tax, now if you have a lot of options still unexercised from former employees and your stock has appreciated a lot the company can be on the hook for a lot of taxes. The company prefers only being on the hook for current employees.

The true solution is to give stock options that can be exercised early as long as the value of the stock is very low such that an employee's hiring bonus after tax could cover the cost. There is no tax owed by the employee since he purchased shares with no gain and then you vest outright stock. Once the stock value goes up it would be best to grant RSUs of convertible notes that convert into stock.

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

#40

Post by pm90 »

gonehome wrote: post #33
honkhonkpants wrote: post #31

Earlier quoted context omitted.

If you exercise shares in a dark market why don't you just mark them at zero? If they aren't trading you can just make up the price and that goes for any good not just shares of companies.

Just because a company isn't public doesn't make it a 'dark market' (not sure what that is). The 409A valuations are real and there are rules surrounding how exercise happens. You can't just sell them outside of that and not pay taxes. You could theoretically sell the shares once exercised to some other private investor if you can find one, but you'd still have to follow the same exercise rules.

Would this information be public? Sounds like it would be easy to get an idea of what a stock is worth in the private market from this data.
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