Employee Equity
blog.samaltman.com
Employee Equity
1–10 of 342 posts
Re: Employee Equity
#2Adding to Sam's post I'd like to see employees made aware about tools like 83(b) elections to decrease their tax liability.
Re: Employee Equity
#3>Perhaps the best way to think about it is to try to come up with a total compensation package with the same expected value (using the company valuation of the last round, or a best-efforts guess if it’s been a long time since the round) as the employee would get at a big company like Google
Am I missing something or is this saying people should be offered an 'expected' equal compensation package to what they would get at Google? What would the incentive be? Google is a company with quite a bit of projected longevity, career progression, and very good perks. Why would I choose a startup with inherently greater risk for only the same reward?
Re: Employee Equity
#4>Perhaps the best way to think about it is to try to come up with a total compensation package with the same expected value (using the company valuation of the last round, or a best-efforts guess if it’s been a long time since the round) as the employee would get at a big company like Google Am I missing something or is this saying people should be offered an 'expected' equal compensation package to what they would g…
I think he is saying to use the "expected value" calculation that guys like Michael O. Church and the others who warn of the dangers of overvaluing options. Generally, this applies a heavy discount to the potential value of the options to account for the increased risk. So the compensation package should be salary + EV(options) ~= big company. That leaves substantial upside in the case of a success (and if you are joining a company and taking any options at all instead of salary, you should be betting on this anyway).
Google may not be the best company to pin to, since they offer pretty generous stock grants from what I understand.
Re: Employee Equity
#5This is a great post, and I agree with almost everything Sam wrote. I think problems #1 and #4 are unfair (you might get less than you deserve, or less than you thought you were getting), but problems #2 and #3 are extremely unfair (you can't take what you've earned with you if you leave the company, or you have to pay taxes on something that has no liquid value and might not have any value in the long run).
I'd love to get Sam's (or anyone else's) thoughts on the 10%/20%/30%/40% 4-year vesting schedule that was mentioned. I don't like this schedule for two reasons:
1) It creates larger discrepancies in what employees earn over time relative to each other. If employee #1 joins today and gets a 2% grant, and employee #20 joins in 2 years and gets a 0.2% grant, then in year 3 of the company, employee #1 will vest 30x as much as employee #20, instead of 10x with the current 25%/25%/25%/25% scheme.
2) This scheme seems to replace and/or ruin refresher grants. Currently, if you do a good job, you get refresher grants every year or two. With the 10/20/30/40 system, you're already getting higher and higher compensation over time, regardless of performance, and the bump from refresher grants while you are vesting your original grant becomes minor. Furthermore, the drop from what you vest in year 4 to what you'd vest from just refresher grants in year 5 becomes much more dramatic and much more likely to push someone to look for other work.
What do others think?
Re: Employee Equity
#6Adding to Sam's post I'd like to see employees made aware about tools like 83(b) elections to decrease their tax liability.
do you (or anyone else) know what happens if you do an 83b election then leave the company before 4 years?
Also, this doesn't really help post A, particularly if you're getting pretty senior and have a bunch of experience. At my last place, I would have had a $50k bill to do an 83b. I could write that check but goddamn is that a lot of cash to part with.
edit: thank you @rosser
Re: Employee Equity
#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
Re: Employee Equity
#8Adding to Sam's post I'd like to see employees made aware about tools like 83(b) elections to decrease their tax liability.
I actually had to explain 83(b) elections to HR at my current job. I don't think it's just employees that need to be made aware of them...
Re: Employee Equity
#9Adding to Sam's post I'd like to see employees made aware about tools like 83(b) elections to decrease their tax liability.
do you (or anyone else) know what happens if you do an 83b election then leave the company before 4 years? Also, this doesn't really help post A, particularly if you're getting pretty senior and have a bunch of experience. At my last place, I would have had a $50k bill to do an 83b. I could write that check but goddamn is that a lot of cash to part with. edit: thank you @rosser
Typically, the company will buy back unvested shares at the strike price if you've forward exercised them.
Re: Employee Equity
#10I've been thinking of putting together something simple to analyze employee option paperwork and add some plain English annotations to help employees understand exactly what they're signing. Based on my experience, there's something like 5 or so templates that cover 90% of the startups in the valley, so shouldn't be too hard. Is there any interest in something like this?