Some employers don't help either. My wife just received an offer from a pretty well funded company (Series B >$20M) and all they would tell her about the options package was number of shares and vesting schedule. When she asked to how many shares are in the company (to calculate her potential ownership %) she wasn't given an answer. When she asked for a rough estimate of the current value of those shares if vested, they basically just said "trust us, this is a good package." That experience reinforced my belief that you should assume the equity is worth $0 and not factor in the stock grant when evaluating an offer (unless you are at the company super early).
Ask HN: Is it just me or do a lot of people not know how stock options work?
21–30 of 89 posts
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#22This bears posting, it explains actual stock options, not what employees/employers bandy about as "stock options".
http://www.investopedia.com/exam-guide/cfa-level-1/derivativ...
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#23Can someone point me to a good guide to stock options?
I've been with a large company since graduation, with Restricted Stock Units granted to me, vesting over time as a nice bonus now and then. But in January, I start with a start-up, and I'm going to learn the reality of how stock options work first-hand. I'd like to know how to make sure I do the best I can with them.
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#24Add me to your example list, I knew nothing till recently (now I know a non-zero amount, still close to zero). I was talking to Docker earlier this year, and really appreciated the recruiter spending about 30 minutes (and told me several times to do additional research) just explaining how options work.
On another note, this recruiter at Docker was hands down the best recruiter I've worked with. 45 minute initial phone conversation to explain the product and roadmap before even scheduling the first phone screen.
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#25many employees don't understand the basics of stock options, hence they don't value equity as much as employers / investors do The fact that I know the basics of stock options is precisely the reason I don't value equity as much as employers or investors do. I can count on two fingers the number of companies whose stock options put money in my pocket, and one of them is Microsoft. I would need many hands to count the…
Which, in turn, sets up a vicious cycle, because employers know that employees don't value equity as much as a cash-equivalent benefit, and respond rationally to that incentive by reducing equity grants. (This is a positive claim, not a normative one).
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#26When it comes to stock options, HN has taught me two things: 1. They are worthless, as >90% startups fail and you won't be getting anything in that case. 2. If they are not worthless, you might not be able to afford paying for them anyway [1]. Add to that how difficult it is to get a simple, clear answer to the question "how do I invest my money?". So yes, I wouldn't be surprised if most people didn't know how stock…
Even though anecdotally, I have made some money on option grants, I now see them as a symptom of cargo-cult management practices.
A few weeks ago, a co-worker asked me for advice about a new (to us) employee stock purchase plan, and I basically said, "don't shit where you eat."
Messing around with your employer's stock isn't a wonderful idea. Most people should just be blindly investing x% of their income in a robot-managed index fund. Fewer people should also be investing in only those businesses they understand well enough to independently analyze. And if I were in any position to really analyze the financials of my employer, well, now I'm subject to insider trading gotchas.
But as a peon-level employee of a company, I am always in the very first group of people to be lied to whenever anything goes wrong. Everything is fine. Continue working as usual. Don't worry about office shutdowns and massive layoffs. I'd always tend to overvalue my employer's stock (or frantically shotgun resumes to other potential employers).
For the purposes of incentivizing better productivity, the company could be adding cash bonuses to my paycheck. It's very simple, and great for my morale (barring memberships in the Jelly-of-the-Month Club, Sparky). My current company has done it a few times. When you hide the "extra free money" behind a stock-shuffling scheme, it makes me think you're up to something sneaky.
Also, I don't consider it wise to be heavily invested in the company that is my primary source of ordinary income.
Think of it this way: would/could you buy the option/stock on the open market if the company wasn't offering it up in the conference room? I wouldn't. Only if I were already 100% financially secure otherwise would I ever invest in my employer directly. And guess what? 100% financially secure means that I can quit, right now, and not have an employer, freeing me to invest in whatever damned-fool thing I want.
If you're taking financial advice from random people on the Internet, the only place you should be investing is robot-managed index funds, and not doing anything on the side until after you have already maxed out your 401(k) contributions.
So I basically value options as "this company would rather generate massive amounts of additional paperwork and hassle than just give me an equivalent value in cash bonuses."
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#27Can anybody share some info on how taking stock options in a US company differs from a UK one? A lot of the reading applies to US market. I'm wondering if any of the advice is not transferrable. Also, I believe that this is a good read - https://blog.alexmaccaw.com/an-engineers-guide-to-stock-opti...
In the past I worked for a UK company from the UK which was owned by a US parent, where employees in the UK were granted options in the US company under the HMRC Enterprise Management Incentives (EMI) scheme: https://www.gov.uk/tax-employee-share-schemes/enterprise-man... . I think without the scheme if I had exercised an option (whether to hold onto the share or to sell immediately) then I would have owed income tax on the difference between the strike price and the current value i.e. the discount my employer effectively gave me. I think I would have owed the tax even if I was forbidden to sell the stock (e.g. if the company had stayed private). With EMI there was no income tax on exercise and I only owed capital gains tax when I eventually sold the stock.
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#28On paper I'm worth enough to pay off my mortgage. In reality I'm most likely never going to see a liquidity event for the startup from which I bought options.
The only time stock was worth something tangible for me was when I was a bootstrapped founder.
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#29When it comes to stock options, HN has taught me two things: 1. They are worthless, as >90% startups fail and you won't be getting anything in that case. 2. If they are not worthless, you might not be able to afford paying for them anyway [1]. Add to that how difficult it is to get a simple, clear answer to the question "how do I invest my money?". So yes, I wouldn't be surprised if most people didn't know how stock…
Even though anecdotally, I have made some money on option grants, I now see them as a symptom of cargo-cult management practices. A few weeks ago, a co-worker asked me for advice about a new (to us) employee stock purchase plan, and I basically said, "don't shit where you eat." Messing around with your employer's stock isn't a wonderful idea. Most people should just be blindly investing x% of their income in a robot-…
To play devil's advocate though, you are being provided more information than the external market would be by virtue of being an employee of a company, and also someone working in the industry, etc.
Having more information at your disposal to evaluate a company means that option grant is worth more to you than to a random person on the street, which is why the company will pay you in options. It's better for the company, since they would rather sell equity to you than to a random person, and it's better for you, because you are an informed investor and know more than just from reading balance sheets.
That said, IMO you should basically only work at a startup that you think will be successful. Given that, you should buy as much equity as you can afford to. From a financial perspective, working at a startup then not taking equity is just throwing away a big chunk of informational efficiency. If you just want a cash paycheck, go work at a big company instead.
Re: Ask HN: Is it just me or do a lot of people not know how stock options work?
#30many employees don't understand the basics of stock options, hence they don't value equity as much as employers / investors do The fact that I know the basics of stock options is precisely the reason I don't value equity as much as employers or investors do. I can count on two fingers the number of companies whose stock options put money in my pocket, and one of them is Microsoft. I would need many hands to count the…
big companies like Microsoft/Google/etc don't even offer most of their employees stock options, but instead they offer RSU (Restricted Stocks Units). Those are easier to understand, there's no exercising decision to be made, you just need to know your vesting dates. The biggest decision is : Do you want to sell your stocks before or after the 1 year Long term capital gain wait, but that decision is common to all stoc…
> The biggest decision is : Do you want to sell your stocks before or after the 1 year Long term capital gain wait, but that decision is common to all stocks.
The decision is more along the lines of sell now vs. sell later. The LTCG decision is not nearly as important. The conventional wisdom is just to treat the RSU as the same as salary by selling immediately upon vesting. Since you're already employed and paid by them, holding equity in the company you work for is unnecessary additional risk.