Palantir Buyback Plan Shows Need for New Silicon Valley Pay System • Hacker News Board

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

#81

Post by harryh » Thu, Jun 30, 2016, 1:05 PM UTC

francoisLabonte wrote: post #39

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.…

I'm pretty sure you are wrong about having to pay taxes if their are ex-employees with unexercised options.

Citation?

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

#82

Post by iamnotarabbit » Thu, Jun 30, 2016, 1:26 PM UTC

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…

It's worth noting that most startups nowadays also include a non-transference clause in the options contract. This forbids any private sale of shares outside of a liquidity event. This is terrible for an employee leaving a company. Not only is the employee on the hook for a big tax bill if he exercises, but he can't even sell any of his shares to cover the cost.

AFAIK, this is a response to Facebook employees selling equity on private markets.

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

#83

Post by hx87 » Thu, Jun 30, 2016, 1:34 PM UTC

mjevans wrote: post #65

lmm wrote: post #58

Earlier quoted context omitted.

Feels like there should be some kind of "shotgun clause" equivalent. The government wants to value your illiquid asset at $x for tax purposes? Fine, but if you disagree with that valuation you get a corresponding right to sell that asset to the government for 90% of $x and make it their problem.

It would be interesting if you could selectively do that, to pay your taxes with the asset valued at that purchase rate.

It could also be a /very/ interesting solution to the Proposition 13 (grandma priced out of house) problem.

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

#84

Post by hx87 » Thu, Jun 30, 2016, 1:41 PM UTC

Mtinie wrote: post #76

coldcode wrote: post #74

Exercising options in a non-public company should not be taxed or valued in any way until the stock can be sold in a public market or to a purchasing entity. Of course what are the odds Congress would ever do that? Nil.

Can't this be mitigated to a large degree by setting the value per share to an tiny fraction of a dollar? Sure, you'll have a tax to pay when the shares are granted, but it should be reasonable. I could get behind the scheme you commented with, but I'm unsure of generally why we have the system we currently do, so I would want to understand the rationale for the status quo.

It probably has something to do with preventing creative ways of liquidating illiquid assets, such as borrowing against the assets and promptly defaulting.

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

#85

Post by stanfordkid » Thu, Jun 30, 2016, 1:58 PM UTC

My hunch is that the majority of revenue was forward looking with foreign governments and large clients. This revenue was used as the basis for raising at extremely high valuations. Investor diligence was weak and the exact terms of these contracts was likely not understood in detail. When shit hit the fan with the software/consulting services and the value was not realized (and or budgets were cut, key champions retired etc.) ... contracts got cancelled. When contracts got cancelled the house of cards started to fall. The issue with huge contracts is that it's very easy to lose them. This is why a broad revenue base is crucial.

Now they know that hundreds of employees are going to go blow the whistle so they have to pay them off with buybacks while they figure out an exit strategy.

My 2 cents.

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

#86

Post by malz » Thu, Jun 30, 2016, 2:10 PM UTC

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…

Palantir was founded 11 years ago, which shows there's nothing magic about the proposed 10-year exercise period. You might still be waiting for your unicorn to provide an exit (which will feel increasingly mythical, like its namesake).

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

#87

Post by oautholaf » Thu, Jun 30, 2016, 2:10 PM UTC

mathattack wrote: post #69

soup10 wrote: post #51

Earlier quoted context omitted.

You can only cash out 12.5%. 12 month non-compete for a small cash out is a pretty double edged deal.

For their California employees who wish to stay in California, the non-compete doesn't matter much. They are virtually unenforceable here.

I am not a lawyer, but it's possible the non-compete is enforceable in California in this case.

When an employee gets something "in kind" for the non-compete agreement, which arguably this is, then it may be upheld. For example, if a company pays you non-salary money in exchange for a non-compete agreement, then it may be upheld. Consider the case of former HP CEO Mark Hurd when he went to Oracle.

What's not enforceable in CA are non-competes in, for example, normal employment contracts that apply to everyone.

Edit: To be clear, Mark Hurd was allowed to work at Oracle, but he had to give the money back he got for signing the agreement.

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

#88

Post by krschultz » Thu, Jun 30, 2016, 2:50 PM UTC

There is an easier solution. Go public. I've gotten options in a private company, RSUs in a private company that got acquired, options in a public company, and RSUs in a public company.

The only thing that I would count on an offer in the future are RSUs in a public company.

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

#89

Post by mavelikara » Thu, Jun 30, 2016, 2:56 PM UTC

argonaut wrote: post #54

solidsnack9000 wrote: post #25

> Mr. Kupor notes that extending the exercise time for former employees makes their options more valuable at the expense of employees and investors. (It does so because former employees have a longer time to exercise their options and dilute the other shareholders.) This is simply a falsehood. Exercises of options of do not dilute shareholders -- new issuances do. Former employees do not issue new shares.

It's not an outright falsehood. He's referring to the (correct, but also insidious) fact that compared to a 90-day exercise window, more people will end up exercising under a more extended window - and this will dilute. In other words, extended windows reduce the number of options returned to the pool, and are thus slightly dilutive.

So the dilution does not come from the exercise period; it comes from rank and file employees being unable to raise the required capital to exercise. So imagine if Kupor had said "We should not be paying employees any salaries; that puts cash in their pockets which enables them to exercise their options when they vest which leads to dilution for every investor" - that would have been an obviously ridiculous position. So is the statement OP is commenting on.

On a side note, you have been defending Kupor in the other thread too with such nitpicks. Why?

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

#90

Post by mavelikara » Thu, Jun 30, 2016, 3:03 PM UTC

coldcode wrote: post #74

Exercising options in a non-public company should not be taxed or valued in any way until the stock can be sold in a public market or to a purchasing entity. Of course what are the odds Congress would ever do that? Nil.

From https://lofgren.house.gov/news/documentsingle.aspx?DocumentI...:

  H.R. 4351 also includes an Incentive Stock Option (ISO) 
  provision that corrects a severe inequity in the AMT tax 
  system and finally resolves the ongoing AMT Incentive Stock 
  Option crisis. This essential provision provides relief for 
  hard working Americans who are treated unjustly by the tax 
  burden caused when exercising their Incentive Stock Options.  
  Under this important provision, employees will pay a fair and
  proportional tax on money actually made and will be relieved 
  of the impossible burden of ongoing liability to pay taxes on 
  income never received. This provision will help ensure that our 
  companies continue attracting the best and brightest with 
  competitive compensation packages.