Don’t Tax Options and RSUs Upon Vesting

We offer stock grants (basically RSUs without a formal vesting schedule) to key employees at my firm and have had no issues. You say that there are issues with the vested stock not being liquid, but the issuing employer can simply offer to buy the shares back if needed at fair value if liquidity is needed, which we determine according to a formula which inputs the firm's balance sheet and trailing profitability.

This has the advantage of being very straight forward, both to the owners as the issuing party, and the employees -- but has the cost of being disadvantaged by the tax code.

Contemporary startup options packages are anything but that. Most of the time neither the employee receiving them nor the HR person explaining them has any idea how they really work -- but for all that opacity, they get a preferential tax treatment.

It's probably worth pointing out that the only reason startups rely so heavily on option compensation as opposed to simple equity grants are for the reasons above: they are tax advantaged, and the employees have no idea what they're getting. I wouldn't mind seeing the startup world return to a more easy to understand scheme.

Of course I can't, but a) why would _I_ personally be able to, about companies I've never been financially tied to?, b) that's not really the point. It's exceedingly rare that anyone outside of an institutional investor, founder, or non-founding C-suite exec will get 10% (or even close to that) of the proceeds at IPO or acquisition time. If that's not common knowledge to anyone who has either worked at a startup and/or has done a minimum amount of reading about startup equity grants, then I guess I don't know what common is.

> Please.

Mind keeping it civil? That kind of dismissiveness is rude and uncalled-for.

> Its not always available on the decision for the employee. The cost of acquiring that information is orders of magnitude different from the employee than the founders/investors. Its still asymmetry of information, even if it is provided, which it isn't always. In any case, if thats what you believe, then you would have no concerns of making it public, since it already is.

I'm not saying anyone makes it public. Asking questions like these is pretty basic advice when receiving an equity grant, and companies that I actually respect give a reasonable answer. No, they're not going to open their books to you, but they'll give you enough information to at least be useful.

> Why cant it afford to be "one of those"?

The cost to IPO (assuming the unlikely event you can find a reputable bank to underwrite) would easily eat up any funding you've gotten in the beginning, and then some.

It's a ludicrous position to say that because the rules of hidden information are known, there would be no effects in the information where to be known. I can't fathom making the argument that because there is potential access to information, its the same as the information being public being done in good faith.

> I'm not saying anyone makes it public. Asking questions like these is pretty basic advice when receiving an equity grant, and companies that I actually respect give a reasonable answer. No, they're not going to open their books to you, but they'll give you enough information to at least be useful.

If its useful to collect it and for the investor to know it, it's useful for the employee to have access to it, and it is also useful for the employee for the general public to have access to it. An employee is woefully unprepared to make an analysis in comparison to investors, even if the company disclosed 100% to their employees, there would still be asymmetry of information.

There is no extra effort for the startup. Just disclosure.

> The cost to IPO (assuming the unlikely event you can find a reputable bank to underwrite) would easily eat up any funding you've gotten in the beginning, and then some.

The cost of an IPO is made up. If there is anything showing that clearly, is the craze for ICO's.