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Employee Equity

blog.samaltman.com

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51–60 of 342 posts

Re: Employee Equity

#51

Post by applecore »

> Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets.

When the founders started the company, their equity was pretty much worthless. When employee #5 is hired and gets 0.50% of the company, her equity presumably has some dollar value. Employee #5 gets a better deal than the founders, even though the founders have 100x more equity.

The only thing that matters is the dollar value of the equity at the time it's awarded.

Re: Employee Equity

#53

Post by acgourley »

diziet wrote: post #22

It's quite difficult to compete with Google and their revenue/cash hordes when it comes to salary / total comp. Especially if you price the options at the last round's price and discount them some more. Imagine a well to do company of 2 founders (in SF/Bay Area) and a team of 3-4 others that raised a seed at 10m cap. They want to grow their team headcount to 15 and are busy hiring, running servers, etc. They can offe…

It would be more realistic if it accounted for the expected growth of the company valuation. It's unrealistic that the company should be valued at 10m for the next 4 years - it's going to grow or zero. Also their salary is likely to bump. Just doing some quick numbers it might be realistic to give the same "EV" as google by granting 2.3% with no raise or 1.5% with a salary that approaches market over 4 years. I think that's very reasonable for the kind of person who is turning down a 200k/yr job to work for you.

Re: Employee Equity

#54

Post by zacharycohn »

awicklander wrote: post #31

There's another option that people never seem to talk about. Treat people well, give them a good working environment, and give them a fair salary based on the fact that they don't have any equity. Most engineers I know with stock options and a discounted salary would have been much better with a higher annual salary and no stock options at all.

Sometimes there is not money to do that.

Re: Employee Equity

#55

Post by robobenjie »

applecore wrote: post #51

> Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets. When the founders started the company, their equity was pretty much worthless. When employee #5 is hired and gets 0.50% of the company, her equity presumably has some dollar value. Employee #5 gets a better deal than the founders, even though the founders have 100x more equity. The only thi…

The dollar value at the time it is awarded matters zero. As an employee the only time a dollar value matters is when I can cash out. The problem is that you have to predict the percentage contribution of an employee from now until liquidation before they do any work. (This is why we vest options, so that if they don't contribute they don't get anything.)

Re: Employee Equity

#56

Post by ritchiea »

birken wrote: post #19

The problem with the 10%/20%/30%/40% thing is that if the company shoots way up in value, an employee could theoretically be fired after two years and not capture much of the value they helped to create. It also doesn't necessarily need to be malicious [1], sometimes companies change and a person's skills aren't as valuable anymore. If I were a prospective employee I would never take a deal like this, because it is r…

Thinking about this another way, if the company shoots up in value immediately even 10% of your equity grant could mean a significant payout if the company is following the rest of Sam's advice by offering above market percentages and being exercisable up to 10 years after the grant date.

Re: Employee Equity

#57

Post by enjo »

ChuckMcM wrote: post #38

I am a fan of giving options every year with a performance multiplier. That way the high performers are rewarded with more options and your available options are more accurately divided amongst the employees who have made the most impact. When you are not yet cash flow positive as a startup you can give 'bonuses' in options rather than in cash. I don't know if we could figure out a portion that employees could contri…

How do you define performance? It's a fantastically difficult thing to define. In my experience every attempt at this (at least for engineers) ends up in a situation where people are putting their effort into maximizing metrics as opposed to furthering business goals.

We completely decouple performance reviews from compensation. Full stop.

Re: Employee Equity

#58

Post by mikeklaas »

applecore wrote: post #51

> Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets. When the founders started the company, their equity was pretty much worthless. When employee #5 is hired and gets 0.50% of the company, her equity presumably has some dollar value. Employee #5 gets a better deal than the founders, even though the founders have 100x more equity. The only thi…

The employee typically gets options, not equity. They are valued at the current market value of the company and cost that amount to acquire. So the value upon grant is 0[1].

[1] modulo accounting tricks

Re: Employee Equity

#59

Post by rickyc091 »

lettergram wrote: post #29
x0x0 wrote: post #7

The best solution I have heard is from Adam D’Angelo at Quora. The idea is to grant options that are exercisable for 10 years from the grant date, which should cover nearly all cases That is an awesome idea, and really classy on Adam's part.

I think 180 - 365 days seems far more reasonable. It's ridiculous to have the company shares tied up with the inability to give them back to other employees.

180 / 365 will pose the issues as 90 days. I had to let go of my stocks since the price to exercise was too high when I left. I wasn't sure when the company would ever IPO or get bought. Though had it been 365 days, it would have worked out for me. My company got acquired 8 months after I had left.

Re: Employee Equity

#60

Post by jbkp »

You know, it's funny, I read things like this from time to time: "so if I have 0.5% of company and it gets acquired tomorrow for $100 million dollars, will I get $500,000?" and I remember that I am in this exact scenario, and have no idea what the answer is. I've been an employee at a startup for 2 years now. I joined when I was young, naive, and broke — I don't even remember if I read the paperwork before signing it.

Does anyone have any advice for how to go about learning more about employee options? I realize I sound dumb, but better late than never.

Some questions I've always had but have been too afraid to ask:

- How does one exercise their options?

- What taxes are there and when do you have to pay those?

- In the above scenario, what factors are involved in me actually getting that $500k?

- What questions aren't I thinking of because I don't know enough about any of this? For example, I've never asked about my options since signing the paperwork: was there something I would have had to do already that I haven't, and will likely screw me in the future?

P.S. Throwaway for anonymity (because I am embarrassed to have to ask!).

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