Employee Equity • Hacker News Board

Re: Employee Equity

#11

Post by x0x0 » Fri, Apr 18, 2014, 6:50 PM UTC

the_watcher wrote: post #4

runT1ME wrote: post #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 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 jo…

The problem with ev calculations is variance (as Michael O, et al, will no doubt forcibly assert.) Employees in the bay area housing market are probably better off taking a lower ev with a corresponding much much lower variance.

Re: Employee Equity

#12

Post by the_watcher » Fri, Apr 18, 2014, 6:51 PM UTC

x0x0 wrote: post #6

porterhaney wrote: post #2

Adding 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

Ask to forward exercise when joining. From what I understand, there isn't a negative impact on the employer, you are just being granted RSU's that they have an option to buy back for $0 before your cliff, and then convert to ISO's at your cliff. You can file that 83b election immediately, which will substantially drop your tax burden.

Re: Employee Equity

#13

Post by aferreira » Fri, Apr 18, 2014, 6:52 PM UTC

Regarding the question of knowing what percentage of total equity your stock grant represents, most companies that are not incredibly early stage will simply not tell you.

Pushing the subject further will make you look like you're nosing around where you shouldn't, often leading to the offer being dropped (this has happened to me).

Not to say it wasn't a not-so-great company to start with, but a dropped offer is a dropped offer.

Re: Employee Equity

#14

Post by gfodor » Fri, Apr 18, 2014, 6:53 PM UTC

lpolovets wrote: post #5

This 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…

The back-weighted scheme is also problematic because sets up a perverse incentive to consider letting people go at the end of their second year unless they are all-stars, since the company ends up keeping 70% of that equity and gets 2 years of hard work out of the person. With an even weighted scheme there is no time-dependent tradeoff like this to be made, the employee continually earns shares at a fixed rate and as long as they are contributing managers never have a hard "decision point" to make with regards to their shares.

Re: Employee Equity

#15

Post by the_watcher » Fri, Apr 18, 2014, 6:53 PM UTC

x0x0 wrote: post #11

the_watcher wrote: post #4

Earlier quoted context omitted.

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 jo…

The problem with ev calculations is variance (as Michael O, et al, will no doubt forcibly assert.) Employees in the bay area housing market are probably better off taking a lower ev with a corresponding much much lower variance.

That's probably all true. My only point was I don't think Sam was saying to make the compensation package that equals what you'd get at Google based on the most optimistic outcomes, but on a true, expected outcome using some broader averages (which leaves room for upside).

Re: Employee Equity

#16

Post by mikeleeorg » Fri, Apr 18, 2014, 6:53 PM UTC

Very interesting. I like this train of thought. I have a lot of developer friends that would rather (and are) pursuing their own entrepreneurial ideas than join an existing company. While I wholeheartedly support that, the flip side is fewer startup-savvy developers available to join other startups.

There are a lot of reasons why they are pursuing their own ventures. A common one is: "It's not worth it to be an employee of a startup. You need to be a founder. (Or maybe employee #1-5.)" You may disagree with that belief, but it's certainly a belief many hold. Sam's suggestions may take this reason off the table.

Re: Employee Equity

#17

Post by x0x0 » Fri, Apr 18, 2014, 6:54 PM UTC

lpolovets wrote: post #5

This 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…

The problem with back weighted grants (and amazon is famous for this) is that the companies that do it are the ones who ride developers raw and are doing it to attempt to stanch horrific employee turnover. Well, I guess I'm generalizing from the example of amazon, but really, is that the company you want to keep?

My take on it as a startup employee is (1) no, (2) hell no, and (3) your company sucks and you are doing this to attempt to lock me in. Also, hell no.

Re: Employee Equity

#18

Post by the_watcher » Fri, Apr 18, 2014, 6:55 PM UTC

andrewfong wrote: post #10

I'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?

This would be fantastically useful. Please, do this. I looked, hard, for this in the last month. If you need it, I'll talk to my employer about creating a template with dummy information based on my package.

Re: Employee Equity

#19

Post by birken » Fri, Apr 18, 2014, 6:55 PM UTC

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 really difficult to have that much trust in a company and founders that you likely don't know that much about. I can't say the standard 4-year vest with a 1-year cliff is the most optimal situation, but from an employee perspective it is way better than 10/20/30/40.

1: Though it could be, I know there was a story about something happened at Zygna like this

Re: Employee Equity

#20

Post by x0x0 » Fri, Apr 18, 2014, 6:56 PM UTC

the_watcher wrote: post #12

x0x0 wrote: post #6

Earlier quoted context omitted.

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

Ask to forward exercise when joining. From what I understand, there isn't a negative impact on the employer, you are just being granted RSU's that they have an option to buy back for $0 before your cliff, and then convert to ISO's at your cliff. You can file that 83b election immediately, which will substantially drop your tax burden.

right right, but I have to (1) come up with $50k in cash (in my example), and (2) if the job isn't working out, I want the fraction of my initial payment back upon leaving and it isn't clear this happens...