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Employee Equity

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Re: Employee Equity

#221

Post by prostoalex »

johnrob wrote: post #188
prostoalex wrote: post #75

Earlier quoted context omitted.

Why? Worst-case AMT rate is 28%, worst case income tax rate is 39.6%. If you have a choice and means, you want to pay AMT.

It's a quid-pro-quo. 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. Later on (hopefully), the stock turns into real money and you pay the (lower) long term capital gains rate. What I was proposing was: Hey IRS, if you let me skip the taxes early on, I'll pay a higher rate down the road. I will g…

> 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.

Re: Employee Equity

#223

Post by Iftheshoefits »

alexandros wrote: post #205
Iftheshoefits wrote: post #89

Earlier quoted context omitted.

You've identified one of the reasons I hesitate to put myself in the "startup labor market" for any startup that isn't well-funded. Even well-funded startups give me pause. I'm not interested in putting in founder-like work for entry-level employee-like compensation plus a lottery ticket. Unless the equity is meaningful and imbues the recipient with an actual, real voice in the direction of the company it's just a wa…

I'd be loathe to join a company where 10 people have a "real voice in the direction of the company". When you join an early team the only way is to trust the founder(s) as knowing what they're doing and listening to the team when there's a good point being made. The alternative is a recipe for politics from day 1.

I wouldn't want to join a 10-founder startup, either. A follow-on to my comment would be that an engineer looking to work at a startup should almost never take options as a part of compensation, and should rarely take actual equity if it isn't sufficient to be on near-equal footing with the other founders' equity. Startups also shouldn't offer such crappy deals. They should pay the market rate, or slightly more because of the inherent risk in being an employee of a startup entails, and forgo the charade of stock grants (in any form).

Re: Employee Equity

#224

Post by ZoF »

michaelochurch wrote: post #201
johngalt wrote: post #176

Earlier quoted context omitted.

The curse of competence. In your next family gathering people will ask you to fix their computer. You say 'Sorry I'm not IT, I'm a programmer'. Suddenly they dislike you. Do they dislike your cousin who waits tables for not fixing their computer? No, just you. Similar themes play out in a business setting. If you're competent everyone will want you to do everything important. Which will result in: 1. You get stretche…

Precisely. If you're "not working up to potential" you may not get fired but you're not going to be promoted. If you drop from a 9 to 7, people notice the -2 delta because changes in performance are much easier to pick up than absolute performance. I'm (mildly) bipolar. The highs hurt me more at work than the lows. The lows I can push through and compensate for. I have a strong enough work ethic that except in an abs…

If it's not to personal; do you have any anecdotal indications as to why your bipolar improved after your early twenties?(or rather; why you haven't had a bout of extreme depression since then)

Re: Employee Equity

#225

Post by spo81rty »

prostoalex wrote: post #77
spo81rty wrote: post #41

This is where having a startup outside of the valley is nice. Nobody where we are (KC) really even expects stock options. We just pay a good competitive salary and don't have to compete with someone like Google paying 2x as much. We have given some people stock incentives but because we pay well and competitively it isn't the primary compensation. The costs of running a startup are so much lower here.

How many startups with $1 bln+ valuation are there in KC?

Probably a similar number if you looked at it as an actual percentage of new companies. My next door neighbor is the founder of a little company called Garmin. Cerner was also founded here.

Re: Employee Equity

#226

Post by danbmil99 »

Has anyone had experience with "early exercise" of (non-ISO) options? As I understand it, this strategy lets you treat them for tax purposes as if you bought the underlying stock, meaning no tax liability at vesting or exercise, and capital gains are all you pay at final sale.

The downside is you have to pony up for the full strike price of all the shares at hiring. Works great if the company valuation is still nominal (ie before a 'valuation event' such as series A, though there may be cap note seed investment already)

One could imagine a company offering a hiring bonus that covers the cost of early exercise (padded for expected tax loss).

Maybe the real problem is this shit is complicated. Then again, we're programmers, right? Don't we do complicated by nature?

Re: Employee Equity

#227

Post by apinstein »

marvin wrote: post #119
jstrate wrote: post #69

I've worked at two startups, including one YC. Both were acquired by larger tech companies. I was employee #3 at one and rebuilt most of a broken codebase in the other. I got nothing out of either WRT options. I agree with the author on point 4 but I don't think more options are the answer, I should have just asked for a higher salary I would have been better off. Startup-bucks are even worse than a lottery ticket, b…

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 we hire each new person

4) Eliminates oddities due to variations in company valuations where swaths of employees end up underwater due to bad luck of timing

Downsides:

1) the tax treatment of bonuses as income rather than capital gains is nominally worse; but given the complications with options, it probably works out better for all but HUGE equity gains

2) this plan might not work well for a company that will be pre-revenue for many years, but that should be a pretty far outlier case.

All-in-all this allows us to offer the opportunity for employees to earn above-market comp without having hope they get lucky with company growth, market timing, and their timing of joining the company.

It's been 3 years now and so far, so good!

Re: Employee Equity

#228

Post by joewallin »

Congress should change the law so that the transfer of stock to workers is not taxed. I am not sure why pro-worker legislation like this wouldn't be supported.

Re: Employee Equity

#229

Post by thrownaway2424 »

x0x0 wrote: post #113
lettergram wrote: post #29

Earlier quoted context omitted.

I think 180 - 365 days seems far more reasonable. It's ridiculous to have the company shares tied up with the inability to give them back to other employees.

And that's why options are (mostly) a scam. If you leave before a liquidity event for any reason (they may not come, they take a long time, life circumstances, poor career growth, employers like to give shitty raises), you're stuck either investing often tens of thousands of dollars into an illiquid investment while paying taxes on it right now, or giving up your options. Sweet deal for employers either way. So when…

If someone won't tell you the number of shares outstanding then you should value it during hiring negotiations at zero. I've had two potential employers (over 16 years) try to pull that on me and I was sure to tell them how much I thought their equity offer was worth during salary conversations. They both eventually produced information on company structure and valuation. It always helps to ask :)

Re: Employee Equity

#230

Post by thrownaway2424 »

philovivero wrote: post #137

I worked as one of the very early founders of Digg. I bought my options. Obviously they're worth nothing, yet I owe the IRS about $120k. This threatens to destroy all my savings, retirement, and credit for 10 years. ISOs are not only worthless 95% of the time, they're also actively EXTREMELY DANGEROUS 50% of the time if they're not simply worthless. My suggestion: get a salary, and buy just-IPO'd stocks from companie…

Why did you exercise them?
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