Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

We need to rethink employee compensation

aaronkharris.com

Post reply on HN
Print view View original

261–270 of 413 posts

Re: We need to rethink employee compensation

#261

Post by areyousure »

vishvananda wrote: post #217
areyousure wrote: post #164

Earlier quoted context omitted.

I've long wondered about something, but I haven't been able to figure it out. This may be my best chance. What is the difference between the following two compensation strategies: (1) You get 100 options, that vest at 1/4 after one year and 1/4 after every following year. (2) You don't get any options now. You will get 25 options, which can be exercised immediately (or whatever the equivalent status is of vested opti…

The main difference would be the strike price of the options, which can make a huge difference in both taxes and income at a liquidity event. Assuming the company is growing over time, you absolutely want option 1. The strike price is determined by a 409a evaluations. Example: assume the valuations each year are 0.10, 0.20, 0.30, 0.40, 0.50 and the sale price is $1 at year 5. In option 1 your strike price will be $0.…

Why can't the options have a strike price of 0.10 in option 2?

(I assume I should look up "409a", the magic keyword to answer my questions?)

Re: We need to rethink employee compensation

#262

Post by SoftwareMaven »

mpdehaan2 wrote: post #7
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.

This. It seems that it's acceptable in tech culture to use "you have too much stock" a reason to even underpay founders. This is busted logic, as the company could explode at any time, not to the fault of anyone in particular (but sometimes yes). So far, I think I've been in 3 decent startups that all of which failed and do not exist anymore. None of them exited cleanly. Some might, but you might not want to stick it…

Giving out stock has potential tax implications for the employee. She could be on the line for taxes for that stock without actually having any increase in liquidity.

Re: We need to rethink employee compensation

#263

Post by dogma1138 »

walshemj wrote: post #251
dogma1138 wrote: post #185

Earlier quoted context omitted.

BT is a multi billion dollar company, not to mention that sharesave isn't the same as an equity compensation. Share As You Earn SAYE is a savings plan in the UK which allows employees to save money from their salary in company shares. The UK has really weird schemes because people have historically had no pension or savings plans from their employees (most PAYE workers still do not have pension as the date mandated b…

Err no the UK used to have very good pensions schemes. BT has a FS scheme unfortunetly now closed to new entrants and its DC pension matches up to 8 or 10% The shares you get from share saves are real shares none of this multiple share lasses with different voting powers. And I certainly get the divi from mine. And yes this years BT is a v good one. And I did 400% roi from my REL shares a couple of years back and you…

I think you are confusing state pension with employer pensions, employer pension contribution are only now being mandated by law, and most companies which use PAYE and are under 50 employees still do not have to do it, the dead line now is 2018 but it's been pushed back all the time.

The shares you got from Sharesave would be "real" shares only if you bought them at the end of the maturation period if you cashed out you wouldn't get to keep any shares, and you don't have voting rights or dividends for those shares while they are in Sharesave.

There are quite a few schemes for this https://www.gov.uk/tax-employee-share-schemes/company-share-...

But any how, this again ins't the same thing as the equity most people get for startups, so again not really a good comparison.

Re: We need to rethink employee compensation

#264

Post by mikekchar »

kelnos wrote: post #99
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.

I used to also believe this, and would parrot it every chance I got, but I've since changed my tune. It's hard to value options. Really, really hard. Saying they're worthless, though, is lazy and counterproductive. If you're joining a seed-stage private company, then yeah, it probably makes sense to so heavily discount the options package that maybe it is close to worthless. But if you're joining a series C that's on…

Being granted equity as a bonus is an incentive. Being granted equity in lieu of salary is asking me to invest in the company.

Let's say I'm asking for X salary. If the company offers me Y salary and W equity such that Y + W = X, then what they have done is gotten me to spend W of my salary investing in their company. If this pays off as an investment, that's great, but it isn't due to their generosity, but rather my investment. In fact, since I'm limited to investing in only their company (instead of being free to invest it in whatever I want), it is a large burden.

If they offer me Equity, W, such that Y + W > X, then (Y + W) - X is compensation (and X - Y is my investment in the company).

To sum up, if a company says, "We will pay you X salary, as long as you invest W in equity in our company" this is not in any way as valuable as X salary. W is a burden on me, not compensation. It is money I am giving them, not the other way around!

For this reason, I always negotiate salary independent of equity.

Re: We need to rethink employee compensation

#265

Post by vlasev »

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.

Same with lending small things and small sums of money to friends/acquaintances. It's often healthier to assume that you are not getting them back.

Re: We need to rethink employee compensation

#266

Post by [deleted] »

areyousure wrote: post #261
vishvananda wrote: post #217

Earlier quoted context omitted.

The main difference would be the strike price of the options, which can make a huge difference in both taxes and income at a liquidity event. Assuming the company is growing over time, you absolutely want option 1. The strike price is determined by a 409a evaluations. Example: assume the valuations each year are 0.10, 0.20, 0.30, 0.40, 0.50 and the sale price is $1 at year 5. In option 1 your strike price will be $0.…

Why can't the options have a strike price of 0.10 in option 2? (I assume I should look up "409a", the magic keyword to answer my questions?)

[deleted]

Re: We need to rethink employee compensation

#267

Post by tptacek »

areyousure wrote: post #255
tptacek wrote: post #222

Earlier quoted context omitted.

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

Can't the strike price be set in the employment contract right now?

Possibly among other issues, because if you grant options to an employee that are below the fair market value of the company, you've just created immediately taxable income for the employee.

Re: We need to rethink employee compensation

#268

Post by varelse »

ryandrake wrote: post #258
varelse wrote: post #192

Earlier quoted context omitted.

I wouldn't even call this inflated in the valley anymore. There are outliers making serious money right here, right now. Such a salary pairs nicely with our lovely $1M+ median house price to insure we can never afford to buy one without living like a monk or going up to our eyeballs in debt. If you don't believe me, then just who's buying those $2M+ houses that stay on the market a week or two? SPOILER ALERT: Double…

Congratulate yourself, because you are, for sure, a fortunate outlier! I don't doubt that there exist engineers out there making $250K+, but they are definitely not the norm, big company or small. Check out a bigger sample of Bay Area companies on Glassdoor. My bet is you'll find the middle 90% to be between, say, $90K and $150K.

Really? My starting salary as a level 1 engineer in the first dotcom boom was $115K. Now had I taken a more fun (but as it turns out in reality frequently not very fun) job in the game industry, that salary would have been ~$70K. This of course is an industry segment with its own crazy outliers.

Fortunately, someone sensible figuratively smacked me upside the head and convinced me to take a more practical job (which ended up pretty fun actually).

Re: We need to rethink employee compensation

#269

Post by vlasev »

varelse wrote: post #192
totalrobe wrote: post #146

Earlier quoted context omitted.

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

I wouldn't even call this inflated in the valley anymore. There are outliers making serious money right here, right now. Such a salary pairs nicely with our lovely $1M+ median house price to insure we can never afford to buy one without living like a monk or going up to our eyeballs in debt. If you don't believe me, then just who's buying those $2M+ houses that stay on the market a week or two? SPOILER ALERT: Double…

Would you care to expand on what makes you such an outlier? Would another person be able to go along in your footsteps?

Re: We need to rethink employee compensation

#270

Post by tptacek »

justonepost wrote: post #249
tptacek wrote: post #202

Earlier quoted context omitted.

Here's the ground truth: if you build a company with someone else's money, they're going to get a huge chunk of the upside, and the original management is going to retain control only as long as they hit their numbers. Hopefully, nobody is saying employees shouldn't be wary of VC funded companies. They definitely should.

Employees should be wary of all employers. It's a dog eat dog capitalistic society out there, guys! That's hardly a clever insight.

This isn't even good snark. It doesn't make sense. Venture capitalists aren't investing their own money. They're taking money from other people's pension funds. They can't just give people's retirement funds to software developers to be nice.
Post reply on HN