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Employee Equity

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Re: Employee Equity

#321

Post by prostoalex »

johnrob wrote: post #252
prostoalex wrote: post #221

Earlier quoted context omitted.

> Right now, if a company gives you private stock you have to treat it as income and pay taxes for it. It's not real income yet, since you can't sell it, but you pay taxes. I think RSUs do exactly that. They're taxed at conversion time which typically coincides with a liquidity event. At issue time they're not treated as income precisely due to restricted nature of it.

After some googling, I agree with you. RSU's are much better than options. So... The solution to the problem of better compensating employees could simply be giving RSU's in place of options.

Yeah, from employee standpoint RSUs are generally better. Late stage companies (GOOG, FB, AMZN) universally grant RSUs. For an early stage company I could see a few counterpoints why not go the RSU route:

1) ISOs are still tax-advantageous if you have the means to exercise them. It turns out that most of the senior hires that arrive at a rapidly growing company are hired for experience, and quite often are wealthy, so for them ISOs are a better deal. Probably minor detail, but with all else being equal a wealthy hire for VP of Sales or VP of Engineering position is more motivated to go the ISO route.

2) Companies nowadays stay private for longer periods of time, and private company shares are getting more liquidity bit by bit (SecondMarket, SharesPost, Equidate). For someone who left the company selling a portion of their holdings, either to get some spare cash, or/and to cover the tax bill associated with ISO exercise, would be nice. RSUs rob employees of that opportunity - the R is gone when company says it's gone.

3) There's certain advantage to companies having golden handcuffs on people. Frequently that means that your earliest or most productive hires are not even shopping around, since they know their share of equity is material, and they are aware they cannot cover the tax bill, so might just as well enjoy the current job.

Re: Employee Equity

#322

Post by wpietri »

7Figures2Commas wrote: post #320
pyrrhotech wrote: post #317

Earlier quoted context omitted.

assuming startup 80+ hours/week.

80+ hours per week? Are you joking? Most startups aren't 9 to 5, but please name a single startup where you believe employees regularly put in 80 hour-plus weeks. Even in professions like law and investment banking, where employees do have to work grueling hours on a regular basis, the "80 hour work week" is largely a myth. I think medical residents are one of the few groups that really puts in these types of hours c…

Yes. And from what I've seen, the companies where developers regularly do put in stupid hours aren't doing it because it's effective. It's a sign of dysfunction. E.g., a competition to be seen as the toughest, or a manager who can't really evaluate productivity other than by counting butts in seats.

Re: Employee Equity

#323

Post by wpietri »

mgkimsal wrote: post #307
pyrrhotech wrote: post #295

Earlier quoted context omitted.

How is $120k/year to live in a top 5 most expensive city in the world to work harder than 95% of the people on the planet on a boring CRUD app winning the lottery in any stretch of the imagination? That sounds terrible.

"to work harder than 95% of the people on the planet" What?

I was wondering the same thing. It makes me think he hasn't seen much of the planet.

Re: Employee Equity

#324

Post by pyrrhotech »

7Figures2Commas wrote: post #320
pyrrhotech wrote: post #317

Earlier quoted context omitted.

assuming startup 80+ hours/week.

80+ hours per week? Are you joking? Most startups aren't 9 to 5, but please name a single startup where you believe employees regularly put in 80 hour-plus weeks. Even in professions like law and investment banking, where employees do have to work grueling hours on a regular basis, the "80 hour work week" is largely a myth. I think medical residents are one of the few groups that really puts in these types of hours c…

hah, don't get me wrong, I highly doubt anyone really "works" a 80 hour week. I personally work 35 given that I take an hour and half for the gym + lunch everyday. And out of that 35, I probably spend 10 reading HN, learning new tech, doing personal emails, and other not exactly job-related activities, so 25 I'd say total of real 'work'.

so I was probably exaggerating a bit, but I stand by my original comment that many of these overworked, underpaid startup employees lead absolutely miserable lives and work harder than 95% of people on the planet.

For reference, the US in general works more hours per week than any other industrial nation. Hunter gatherers worked only 15 hours/week. Most impoverished nations work very few hours per week. The only people who beat them out are sweat shops in Southeast asia

Re: Employee Equity

#325

Post by mgkimsal »

wpietri wrote: post #323
mgkimsal wrote: post #307

Earlier quoted context omitted.

"to work harder than 95% of the people on the planet" What?

I was wondering the same thing. It makes me think he hasn't seen much of the planet.

Precisely. Work in a boiler room, or hike sacks of grain 20 miles on your back, or work in low end food service, or go scrub toilets 60 hours per week, then come back and say software developers are working harder then 95% of other workers.

Re: Employee Equity

#326

Post by judk »

nl wrote: post #289
username223 wrote: post #255

Earlier quoted context omitted.

If your Human Resources people don't play a significant role in purchasing your human resources, something has gone wrong.

1000 times, no. HR is there to make sure you know where the toilets are. They can't pick a Javascript programmer, nor can they decide what to pay for one.

But they are the ones having the actual conversation and working the rhetoric to close a deal. They aren't Deciders, but they are Negotiators ("salespeople").

Re: Employee Equity

#327

Post by johnrob »

prostoalex wrote: post #321
johnrob wrote: post #252

Earlier quoted context omitted.

After some googling, I agree with you. RSU's are much better than options. So... The solution to the problem of better compensating employees could simply be giving RSU's in place of options.

Yeah, from employee standpoint RSUs are generally better. Late stage companies (GOOG, FB, AMZN) universally grant RSUs. For an early stage company I could see a few counterpoints why not go the RSU route: 1) ISOs are still tax-advantageous if you have the means to exercise them. It turns out that most of the senior hires that arrive at a rapidly growing company are hired for experience, and quite often are wealthy, s…

I think RSUs are universally better for employees because your downside risk is zero. You'd have to be extremely confidant to be willing to risk money for the sake of tax savings (I suppose if the exercise price is low enough it's a non issue).

Re: Employee Equity

#328

Post by jorde »

jknightco wrote: post #290
bane wrote: post #189

Earlier quoted context omitted.

I worked at a few also and managed to get a little money out of options, but nothing to write home about. I think after one company sold I got my payout and bought a new computer and a nice dinner and that was it. I'm actually sitting on a huge pile of vested options at a company I left a few years ago, but I'm unlikely to ever exercise them during a sale because the strike price is almost guaranteed to be higher tha…

Maybe I'm mistaken, but I believe you only have 90 days after leaving a company to purchase vested options. I may be wrong, however.

To my knowledge, stock options are usually granted as ISO which have the 90 day cap. If they get converted to NSO, the cap can be longer but tax treatment is different.

Re: Employee Equity

#329

Post by orky56 »

apinstein wrote: post #227
marvin wrote: post #119

Earlier quoted context omitted.

Has anyone stopped to think what a massive failing of the startup part of the industry this is? Practically everything I read online indicates that if you consider your stock options to have any value at all even in a moderately successful company, you are a major sucker and about to get exploited. Surely this must reduce the quality of the talent pool available to new startups, as the experienced developers conclude…

We came to this conclusion as well; we decided to do bonuses based on Y/Y revenue growth rather than equity. The bonuses are not capped. This allows us to: 1) Justly reward our employees to the upside (with cash, delivered semi-anually) if things go according to plan 2) Automatically controls costs if we don't perform as a team 3) Achieve upside fairness across early vs late employees since we can adjust the bonus %…

As an investor and/or equity holder, wouldn't you rather see a startup reinvest their profits into their business? Retained earnings are not meant to be paid out as dividends if they can significantly increase shareholder value. This is even more true for startups where you are seeking a "hockey stick growth" model. Especially when you consider what is more important at a given time: profit, revenue, users, market share, uniques, etc. I would argue that it's important for a startup to be transparent around all these issues and help investors understand where you are at. It's unfortunate that startups can only rely on financing rounds to get updated valuations of their business. Coming up with internal valuations based on arbitrary multiples that are not validated by investors could be a slippery slope and thus are not worth considering.

Re: Employee Equity

#330

Post by apinstein »

orky56 wrote: post #329
apinstein wrote: post #227

Earlier quoted context omitted.

We came to this conclusion as well; we decided to do bonuses based on Y/Y revenue growth rather than equity. The bonuses are not capped. This allows us to: 1) Justly reward our employees to the upside (with cash, delivered semi-anually) if things go according to plan 2) Automatically controls costs if we don't perform as a team 3) Achieve upside fairness across early vs late employees since we can adjust the bonus %…

As an investor and/or equity holder, wouldn't you rather see a startup reinvest their profits into their business? Retained earnings are not meant to be paid out as dividends if they can significantly increase shareholder value. This is even more true for startups where you are seeking a "hockey stick growth" model. Especially when you consider what is more important at a given time: profit, revenue, users, market sh…

Our bonus plan is based on revenue growth, not profits. Most of your counter-arguments are based on critiques of redirecting profits, which in our case is not what's going on. That said, you are right that generally companies shouldn't pay dividends if they have something better to do with the cash.

However, I'd make the argument that paying above market for top talent is about the best thing a startup can do to increase its likelihood for continued success.

So why did we choose revenue growth instead of profits as the basis for the bonus plan? Profits are easily gamed and frankly rare in startups and would not make for an appropriate metric to base bonuses on for an early-stage company.

I am not sure I follow your points about metrics, transparency, valuations, etc. Those seem like concerns unrelated to the structure for giving employees exposure to our financial upside.

Our #1 metric is revenue growth. That's what we want our team focused on. Not vanity metrics, not profits even. That's a management concern. Our bonus plans cover multi-year terms, and they motivate one to do the right thing in the long-term vs short term. There are no issues with gaming the bonus program; moving $1 of revenue forward/backwards by a few months has no effect. Making an extra $1 now at the expense of $2 next year is not rewarded. "Top management" still has to approve overall direction and operational processes, so it's not like anyone even has the opportunity to game revenue numbers at the expense of operating margin. Besides that, we hire good people and if you can't trust

I will say that for some types of models (eg Twitter) this wouldn't work as it's a free-as-in-beer product until they can start doing advertising. But models like that are quite rare. Though even in those cases there is probably a single vanity metric that is theoretically the main driver of future revenue growth which could be used.

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