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We need to rethink employee compensation

aaronkharris.com

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Re: We need to rethink employee compensation

#221

Post by vacri »

ryanSrich wrote: post #20
drivingmenuts wrote: post #5

Earlier quoted context omitted.

I tend to think of options as worthless, until they vest. Which is too far in the future to count on. Pay me money. That's actually useful.

> Which is too far in the future to count on. Actually you should count on them always being worth $0. Not only for compensation purposes but for your personal psychology. It's better to tie yourself to reality.

There's been a couple of stories here in the past where employee stocks have literally been worth $0 when they vested, due to financial shennanigans pulled by the founders.

options should be seen in the same vein as bonus money - they don't exist until the money is in your hands. Some people work at places where bonuses can be relied on like bedrock, but usually I see people struggle to get their promised bonuses.

Re: We need to rethink employee compensation

#222

Post by tptacek »

areyousure wrote: post #211
tedunangst wrote: post #194

Earlier quoted context omitted.

The strike price for options you receive two years from now will likely be much higher than the strike today.

Why can't I be told what the strike price will be for the options for the next four years?

Because it depends on the valuation of the company, and nobody can see the future.

Re: We need to rethink employee compensation

#223

Post by mbesto »

totalrobe wrote: post #146
varelse wrote: post #143

Earlier quoted context omitted.

Given that a seasoned and in-demand engineer can make anywhere from $250K to $500K annually working for a big co, without a 3-letter title and 3-letter title equity, there seems little incentive to accept $150K or less and ~0.5% or less equity. Calculate your expected return over the next 5 years. Most startups come up really short.

$250 - $500k? Got anything to back up this claim?

Netflix: http://data.jobsintech.io/companies/netflix-inc/2015

I know Google, Facebook, etc. also do but those salaries are probably reserved for the van Rossum's (Google/Dropbox) and the Lerdorf's (Etsy) of the world.

Re: We need to rethink employee compensation

#224

Post by reinhardt »

arbitrage314 wrote: post #168

I've made this point before, but since it's a bit relevant here, I'll make it again (sorry to repeat): If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup. If you're a good developer, you can get a better deal by working at an established company and simply investing. This has been true for every startup offer I've ever seen. Ever. I…

> most people who work at startups aren't interested in money.

That's a bold assertion, bolder than "most people who work at startups usually don't get to have competing offers for $250k to pass up"

Re: We need to rethink employee compensation

#225

Post by WalterSear »

tptacek wrote: post #114
branchless wrote: post #70

Earlier quoted context omitted.

That says it all really. $30M and you see under $100k as 24th employee. So 0.3%.

30bp is not a low number for employee #24. I got a huge windfall from a year and a half I worked for just 50bp, as employee #5 and a principal contributor. Do the math. Cut 30MM in half, and give half to investors. That leaves 15MM. Divide that 24 ways and nobody's getting 7 figures. But of course, that's not how it works; at 30MM, even an extremely egalitarian division of what's left after investors recoup is still…

Which is why I will only work with unicorn chasers at this point. I can't stomach working for large, established companies any more, but there needs to be enough cheese to go around.

Re: We need to rethink employee compensation

#226

Post by MCRed »

harryh wrote: post #120
pzb wrote: post #111

Earlier quoted context omitted.

The percentage really doesn't matter. Assume that you could get a $150K cash/stock at a public company (meaning concrete valuation). A startup offers you $80K and says "here is equity to make up the difference". If you assume three years and a 10% chance of them being worth something that means you need RSUs worth at least $2.1M to meet expected loss of salary. I highly doubt you are getting that.

Startups aren't a roll of the dice where they are all the same with equal probabilities of success. Make good decisions. Join the right team.

Here's what 20 years of experience working for startups has taught me:

-- Either be a founder if you want to be there in the early days.

-- Or join a "sure thing". EG: Google, Twitter, Facebook about a couple years before they went public were already household names and really well known.

I don't know how much upside you get joining a sure thing like that, but that's how you make sure your options will come into money.

Being employee number 5-100 of the average Silicon Valley startups is a losing proposition because the risk adjusted value of your options will never compensate you for your lost salary. (especially if you have to live in California- you're better off working for a startup in Austin than California due to the cost of living and tax situation. The higher salaries in California don't cover the difference.)

And yes, blame me, I turned down being employee number 13 at what became a $6B enterprise software company. Would have been CTO or way up in the executive team because they were a bunch of biz guys who needed a hacker. Instead I worked for just a year for a small business (not really a startup this was before "startups")

But it's damn hard to tell the difference at those early stages.

And when questions like "what's the total number of shares outstanding on a fully diluted basis?" (back when companies would say "You'll get 10,000 shares!!!!111!!") are met with "sorry that's confidential" during the hiring process, it is a bit difficult to do proper due diligence.

Re: We need to rethink employee compensation

#227

Post by tptacek »

MCRed wrote: post #216
tptacek wrote: post #209

Earlier quoted context omitted.

Once again, these aren't so much opinions as they are mathematical facts. The modal outcome for a portfolio of startup A rounds is a 0% return on investment. If fully half the companies in a portfolio exit in the money --- which seems wildly optimistic --- and their average return is 150%, the portfolio loses money. Nobody is entitled to venture capital. Plenty of people start companies without it.

Yep, but I couldn't care less about the portfolio, and the founders shouldn't either. You're pointing out why VCs need big exits, and even a profitable one like this one may not be profitable "enough", but that "enough" is their portfolio view. From a founder view, we shouldn't be carrying the weight of the effective cost of the fact that the VCs can't pick companies worth a damn and want to make it up on us, if we h…

You very much do care about the economics of VC if you need their money to build your company. No professional investor will give you terms that will lead to them losing money; that's irrational.

People don't sell equity to VCs because they've been snake-charmed by them. They do it because if you need 2MM+ for your company, they're the only realistic option. Ever talk to a bank about a line of credit against receivables? That's a fun conversation.

Re: We need to rethink employee compensation

#228

Post by MCRed »

WalterSear wrote: post #225
tptacek wrote: post #114

Earlier quoted context omitted.

30bp is not a low number for employee #24. I got a huge windfall from a year and a half I worked for just 50bp, as employee #5 and a principal contributor. Do the math. Cut 30MM in half, and give half to investors. That leaves 15MM. Divide that 24 ways and nobody's getting 7 figures. But of course, that's not how it works; at 30MM, even an extremely egalitarian division of what's left after investors recoup is still…

Which is why I will only work with unicorn chasers at this point. I can't stomach working for large, established companies any more, but there needs to be enough cheese to go around.

I think github was the ideal company. They were profitable from day one, grew like crazy.

But they weren't chasing a unicorn.

There's a lot of delusion among "unicorn chasers" that I've seen-- but that may not be the same group you're referring to.

Re: We need to rethink employee compensation

#229

Post by dman »

MCRed wrote: post #208
dman wrote: post #167

Earlier quoted context omitted.

If youre great at identifying the right team, why not work as a VC rather than working as an employee :) .

VCs are terrible at this. I can't tell you how many times in the past 20 years I've heard VCs say things like "you should move into [tangentially related area that we can't add value to that just had a big exit]" For instance, when youtube got bought, VCs were all interested in investing in online video companies. At that point, though, Youtube had already been bought! They were like 5 years too late.

That might well be true, the point I was trying to make was that as an employee its dangerous to make decisions based on the belief that you are great at picking winning teams / companies. Sure VC's are bad it too, but theyre sensible enough to do it with other peoples money.

Re: We need to rethink employee compensation

#230

Post by tptacek »

MCRed wrote: post #228
WalterSear wrote: post #225

Earlier quoted context omitted.

Which is why I will only work with unicorn chasers at this point. I can't stomach working for large, established companies any more, but there needs to be enough cheese to go around.

I think github was the ideal company. They were profitable from day one, grew like crazy. But they weren't chasing a unicorn. There's a lot of delusion among "unicorn chasers" that I've seen-- but that may not be the same group you're referring to.

Github was wildly successful, very well established, and profitable when they took the money; they're effectively a bootstrapped company.

If you can bootstrap, you virtually always should.

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