We need to rethink employee compensation • Hacker News Board

Re: We need to rethink employee compensation

#231

Post by pekk » Wed, Jun 24, 2015, 9:53 PM UTC

avz wrote: post #172

Jemaclus wrote: post #3

In this market, I tend to think of options as incentives, and not as replacements for salary. Salary gets me in the door and work hard, great people and culture make me want to be there and evangelize, and options incentivize me to work my ass off. (I'd work my ass off without options, but the options really make it easy to say "I will do everything in my power to make this succeed" instead of "I'd rather go spend ti…

> I can't pay my rent with options. This indicates that what you're looking for at the moment is cash, not ownership over assets. This is fine. However, this preference is by no means universal. I imagine that beyond certain amount cash isn't useful anymore and you begin looking for ways to invest it anyway. Generally, cash loses value due to inflation, but offers high liquidity (you can spend it right away). Many ot…

The point made was that options and salary are not fungible. Which is true, they're not. Working for a very constrained kind of investment asset is not the same as working for a salary.

Re: We need to rethink employee compensation

#232

Post by kamaal » Wed, Jun 24, 2015, 9:55 PM UTC

MCRed wrote: post #54

wwweston wrote: post #16

Earlier quoted context omitted.

> I tend to think of options as worthless, until they vest This is a good idea, but I'm not sure it takes things far enough. For the majority of developers, options are often not especially valuable even when they vest. The most common value outcome of a success/sale seems to be "modest bonus" (4 figures to low five figures) rather than a jump up to a different economic class. I suspect many devs could do as well by…

Over many years as an employee for startups, I was employee number 24 of a $30M cash acquisition exit. The result was 6 figures, but just. Effectively it was a year's salary. That's all my options were worth and to get that return, I worked for about 20 startups over 2 decades... only one paid off.

Factor in taxes and that would be way less. More like six months salary. Factor in inflation on top of it and that would be more like four months salary.

Its all about luck. Things can go either way.

Re: We need to rethink employee compensation

#233

Post by dripton » Wed, Jun 24, 2015, 9:55 PM UTC

drivingmenuts wrote: post #5

Jemaclus wrote: post #3

In this market, I tend to think of options as incentives, and not as replacements for salary. Salary gets me in the door and work hard, great people and culture make me want to be there and evangelize, and options incentivize me to work my ass off. (I'd work my ass off without options, but the options really make it easy to say "I will do everything in my power to make this succeed" instead of "I'd rather go spend ti…

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 think of pre-IPO options as worth just more than zero. (I'd rather have them than not have them, but not by enough to give up significant salary). The possibility of dilution in most option agreements, combined with the time until vesting and the possibility of the company failing, means that it's impossible to put a solid floor under their value. I've made 5 figures from pre-IPO stock options twice. Nice, but hardly worth taking a pay cut for.

Options in already-public companies are quite a bit less risky. I consider employee stock grants in a healthy public company to be worth about 75% of the current value of the stock. (The discount is because of the vesting period. If I change jobs, I lose some of the stock. If I stay at the job just to get the stock, when there's a better opportunity elsewhere, I lose that opportunity.)

Re: We need to rethink employee compensation

#234

Post by wmeredith » Wed, Jun 24, 2015, 9:59 PM UTC

Jemaclus wrote: post #3

In this market, I tend to think of options as incentives, and not as replacements for salary. Salary gets me in the door and work hard, great people and culture make me want to be there and evangelize, and options incentivize me to work my ass off. (I'd work my ass off without options, but the options really make it easy to say "I will do everything in my power to make this succeed" instead of "I'd rather go spend ti…

I think of options as lottery tickets. Sure, things might turn out, but they're ultimately a tax on the financially ignorant.

Re: We need to rethink employee compensation

#235

Post by hellbanner » Wed, Jun 24, 2015, 10:01 PM UTC

drivingmenuts wrote: post #5

Jemaclus wrote: post #3

In this market, I tend to think of options as incentives, and not as replacements for salary. Salary gets me in the door and work hard, great people and culture make me want to be there and evangelize, and options incentivize me to work my ass off. (I'd work my ass off without options, but the options really make it easy to say "I will do everything in my power to make this succeed" instead of "I'd rather go spend ti…

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.

Yup. I ended up quitting my day job to work in a startup just a week before my options would have vested at the 2 year mark. That was several years ago and that company still hasn't been sold.. those options would still today be worth nothing.

Re: We need to rethink employee compensation

#236

Post by smileysteve » Wed, Jun 24, 2015, 10:01 PM UTC

MCRed wrote: post #60

pbreit wrote: post #52

Earlier quoted context omitted.

Yeah, but no one ever got rich off salary.

I've made more money investing in stocks and options than I have from options. Over 20 years as an employee (so excluding time as a founder) my returns from investments is 2-3X the return from startup stock options. And that's as only a part time investor. I like sure things (like I knew in 2001 from an understanding of economics that there would be a housing bubble and that it would eventually burst. I was never abl…

I'm very surprised when I discover how uncommon it is for [even] our industry to invest in equities. Somehow stock in a company makes more sense to most than compound returns.

It's even more surprising when I find 30 year olds who haven't figured out to use the company match on their 401k yet.

Re: We need to rethink employee compensation

#237

Post by wmeredith » Wed, Jun 24, 2015, 10:05 PM UTC

gnorsot wrote: post #218

In some situations startups just don't have enough money to offer and the only thing that they could give is stocks. In those cases it is a matter of negotiating bigger cut of options to compensate for small salary.

It doesn't matter if it's a bigger cut of zero. That's the problem.

Re: We need to rethink employee compensation

#238

Post by tptacek » Wed, Jun 24, 2015, 10:06 PM UTC

vacri wrote: post #221

ryanSrich wrote: post #20

Earlier quoted context omitted.

> 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.

It's very easy for shares in a liquid-seeming exit to be worth nothing, even with no shenanigans. For instance: raise a B round, and then sell for low 8 figures. Liquidation preferences will wipe out most of the outcome. People lose perspective about this, because they only see the final number (and the "employee shares worth 0"), but if you raise 20MM and then sell for 20MM, it's not hard to see why the shares aren't worth anything.

Re: We need to rethink employee compensation

#239

Post by learnstats2 » Wed, Jun 24, 2015, 10:07 PM UTC

avz wrote: post #172

Jemaclus wrote: post #3

In this market, I tend to think of options as incentives, and not as replacements for salary. Salary gets me in the door and work hard, great people and culture make me want to be there and evangelize, and options incentivize me to work my ass off. (I'd work my ass off without options, but the options really make it easy to say "I will do everything in my power to make this succeed" instead of "I'd rather go spend ti…

> I can't pay my rent with options. This indicates that what you're looking for at the moment is cash, not ownership over assets. This is fine. However, this preference is by no means universal. I imagine that beyond certain amount cash isn't useful anymore and you begin looking for ways to invest it anyway. Generally, cash loses value due to inflation, but offers high liquidity (you can spend it right away). Many ot…

That liquidity is important at the point of compensation - if you hold cash, you can invest it in what you choose.

Re: We need to rethink employee compensation

#240

Post by WalterSear » Wed, Jun 24, 2015, 10:07 PM UTC

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.

I should be more specific: unicorn chasers that aren't huffing their own farts :)