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

Who pays when startup employees keep their equity?

gist.github.com

Post reply on HN
Print view View original

71–80 of 243 posts

Re: Who pays when startup employees keep their equity?

#71

Post by timcederman »

jamie_ca wrote: post #51
timcederman wrote: post #26

There is a downside to RSUs. Say you work for a private company with a high valuation, e.g. AirBnB at $25B, and you are granted 0.01% equity over 4 years. That means you are vesting $2.5m of RSUs over 4 years, and these RSUs are taxable at that amount. Typically for folks earning over $150k/year in base salary, particularly if married, even half as much will put you into AMT territory, and you will end up paying a si…

Is that a US thing? I'm up in Canada, and the RSU structure for my employer is an initial grant of $3x, with $x vesting every year for three years. Only when I exercise the vested RSUs (flat exchange at fair market value - typically the average stock price over the past week) do I declare them as income, at which point it's taxed as per usual for employment income.

Yes, it's a US thing.

Re: Who pays when startup employees keep their equity?

#72

Post by timcederman »

cloudjacker wrote: post #44
timcederman wrote: post #26

There is a downside to RSUs. Say you work for a private company with a high valuation, e.g. AirBnB at $25B, and you are granted 0.01% equity over 4 years. That means you are vesting $2.5m of RSUs over 4 years, and these RSUs are taxable at that amount. Typically for folks earning over $150k/year in base salary, particularly if married, even half as much will put you into AMT territory, and you will end up paying a si…

You know the simple solution to this is that companies withhold the amount of RSUs from you that would be taxed, when they vest. Its almost like so simple of a solution that reporters won't touch it. edit: nevermind. even the company cant pay the tax with their illiquid RSUs so its still a problem, and a bigger problem if the share valuation increases, pre-IPO

In this case they are still withholding, but the withholding doesn't cover enough because of AMT and other reasons.

Re: Who pays when startup employees keep their equity?

#73

Post by bradleyjg »

landryraccoon wrote: post #48
bradleyjg wrote: post #42

Earlier quoted context omitted.

Going the cash route has a higher expected value but a lower variance. Different people have different attitudes towards risk.

I think you mean lower expected value, no? The way you put it cash is strictly better in every way than options - both higher expectation and lower risk. According to you there's no upside to options relative to cash.

You're assuming a utility function of someone that's either risk adverse or risk neutral. What happens when you plug in a risk seeker?

Re: Who pays when startup employees keep their equity?

#74

Post by khuey »

justinlardinois wrote: post #52
shon wrote: post #31

It's interesting to see the popular response to this thread being one where people think employees are better off with salary over options. This seems crazy to me as I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash), start companies, become investors and/or take long sabbaticals with the proceeds from their options. With salary…

Are you talking about options being the entirety of one's financial compensation? Because I wonder how people who work without a salary manage to pay the bills every month. > the tax on W2 income is simply the worst As opposed to getting taxed on what you eventually make from your options?

The maximum federal tax rate on what "you eventually make from your options" is likely 23.8%, whereas on the equivalent salary it'd be 43.4%.

Re: Who pays when startup employees keep their equity?

#75

Post by akkartik »

cloudjacker wrote: post #44
timcederman wrote: post #26

There is a downside to RSUs. Say you work for a private company with a high valuation, e.g. AirBnB at $25B, and you are granted 0.01% equity over 4 years. That means you are vesting $2.5m of RSUs over 4 years, and these RSUs are taxable at that amount. Typically for folks earning over $150k/year in base salary, particularly if married, even half as much will put you into AMT territory, and you will end up paying a si…

You know the simple solution to this is that companies withhold the amount of RSUs from you that would be taxed, when they vest. Its almost like so simple of a solution that reporters won't touch it. edit: nevermind. even the company cant pay the tax with their illiquid RSUs so its still a problem, and a bigger problem if the share valuation increases, pre-IPO

Grandparent was talking about AMT, which is still a valid concern even with RSU withholding.

Re: Who pays when startup employees keep their equity?

#76

Post by landryraccoon »

gringofyx wrote: post #43
dasil003 wrote: post #28

Earlier quoted context omitted.

So getting paid way above market and working at a place where software engineering talent is highly respected and valued is "losing out"? I'm sorry but this entitled attitude just grates at me. If you are in SV getting paid 3-5 times the median household income you already are in the 1% and you already have all the advantages in terms of upward mobility. If you want to earn millions go out and start your own company…

1. Not all employees are paid above market value 2. Working somewhere that software engineering talent is highly respected is no measure of fiscal compensation 3. Those advantages of upward mobility are learnt, or acquired skills that people work at. There is no opportunity for them to be in the same position as a 1%er living off their parents money to invest and then continue to get rich(er) 4. You imply that employ…

You specifically called out Google in your comment. As a result your arguments feel odd, since Google has a reputation for high salaries and high quality of life. If you specifically mention Google as a problem, you must hate the vast majority of the industry that both doesn't compensate as well and doesn't offer comparable quality of life. In other words, if you aren't happy as a software engineer at Google, where would you be happier?

Re: Who pays when startup employees keep their equity?

#77

Post by shon »

rdtsc wrote: post #61
shon wrote: post #31

It's interesting to see the popular response to this thread being one where people think employees are better off with salary over options. This seems crazy to me as I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash), start companies, become investors and/or take long sabbaticals with the proceeds from their options. With salary…

> I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash) I have watched friends get paid a smaller salary, hoping for a great exit only to find their options diluated or the company just simply failing. Now you probably only have lucky and successful friends or that friends who didn't get enough cash to buy a house are probably not i…

In my mind, startups are less like the lottery and more like blackjack. You are gambling either way (as with any investment) but, with blackjack and startups you can optimize.

Unlike the lottery, knowledge and skill play a role here.

Re: Who pays when startup employees keep their equity?

#78

Post by mikeash »

landryraccoon wrote: post #48
bradleyjg wrote: post #42

Earlier quoted context omitted.

Going the cash route has a higher expected value but a lower variance. Different people have different attitudes towards risk.

I think you mean lower expected value, no? The way you put it cash is strictly better in every way than options - both higher expectation and lower risk. According to you there's no upside to options relative to cash.

The upside is a non-zero chance of becoming filthy rich. Some people are willing to put up with a lower expected value in exchange for that chance. It's a fancy version of the lottery, which many people also play.

Re: Who pays when startup employees keep their equity?

#79

Post by turnip1979 »

Retric wrote: post #68
shon wrote: post #31

It's interesting to see the popular response to this thread being one where people think employees are better off with salary over options. This seems crazy to me as I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash), start companies, become investors and/or take long sabbaticals with the proceeds from their options. With salary…

A single person making 100k+ has a ~90% chance of saving enough in 10 years to retire in a cheap location. That is a life changing amount of money.

Not if you live in the Bay area. Definitely not if you have to support a family.

Re: Who pays when startup employees keep their equity?

#80

Post by JohnTHaller »

rezlov wrote: post #70
rdtsc wrote: post #61

Earlier quoted context omitted.

> I have watched many close friends cash out options from companies including Google, Yelp, Apple and Pandora and buy houses (some with cash) I have watched friends get paid a smaller salary, hoping for a great exit only to find their options diluated or the company just simply failing. Now you probably only have lucky and successful friends or that friends who didn't get enough cash to buy a house are probably not i…

That's the name of the game. You take a risk to make big money, and sometimes that risk doesn't pay off.

*Most of the time in the case of startups
Post reply on HN