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Golden Handcuffs

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Re: Golden Handcuffs

#261

Post by vlovich123 »

dahart wrote: post #213
vlovich123 wrote: post #193

Earlier quoted context omitted.

Without the investment funds, where is the startup getting the funds to pay you 100k/year? Some startups take a while to hit big and the only source of funding is investors. Fair or not, there’s a power imbalance and ignoring that seems foolish. Also, the view you have is biased to the rare success scenario. In the failure scenario, the employee comes out ahead since they at least got some amount of their investment…

I think everything you said is true at face value, but do you have a viable alternative proposal? Do you prefer to believe that financial investment is riskier than time investment, and do you want to preserve the status quo where there’s a power imbalance in favor of money investors? I’m suggesting a way to value an employee’s time investment in a startup that doesn’t depend on speculation or subjective discussion o…

So I'm missing your point. If you forego $100k/yr of stock options to work at a startup, you're hedging your risk. You're still getting healthcare & a regular paycheck (even if it's less). This directly impacts the company's runway (i.e. your "100k investment" looks like a cost to the company. Don't forget that once you're past the seed round (where the company is literally making nothing), you're looking at multi-million dollar rounds where the minimum check size is maybe low-to-mid six-figures. That's also the point where employee compensation starts to rise btw so your sacrifice is largely meaningful just to you (not to mention that you are getting compensated well anyway in the success scenario, but less than those that took a bet with 0 hedge).

I'll note that nothing is actually stopping you from saying "sorry, no I don't want to work at your startup but would you take a 100k investment instead?" & becoming an investor yourself. You get to choose which role you want to play so why is "but I put time equity into it & didn't get rewarded the same" a fairness axis? You have access to all the information at your fingertips. To me if you're unhappy with a particular outcome that depends on which side of the equation you were on, that has to do with your own decision making ability/negotiating ability.

Re: Golden Handcuffs

#262

Post by triceratops »

lumost wrote: post #257
chris11 wrote: post #216

Earlier quoted context omitted.

I'm not really sure how options should be valued, and I haven't negotiated from a position of have a ton of unvested equity. But if an engineer got extremely lucky by joining the right startup, say Coinbase, leaving early might mean giving up a few million in unvested equity. That's a lot of equity if the startup treats that lost income as if the engineer had invested that amount in the last fundraising round. Option…

so the key question here is what a "mid-level" engineer can do for your company early. An engineer with 5 years of experience at FAANG will easily make ~200-250k, competitive scaling startups and public companies will compensate equivalently withing ~30% in liquid compensation. If that engineer instead works for 100k and takes 100k in illiquid equity which may or may not be worth something in 10 years, they are losin…

Thank you!

Re: Golden Handcuffs

#263

Post by ska »

dahart wrote: post #148
ska wrote: post #130

Earlier quoted context omitted.

> based on today’s valuation of the stock. This is the tricky part, especially if you are very early. Really what you want is the (statistical sense) expected value of the equity be something like the opportunity cost, for it to make sense for you. But until the company has been around for a while and through a few rounds, valuation is mostly a fantasy...

It’s not that tricky, because the investors are getting a valuation. The money I risk/invest/forego now because it’s a startup maybe ought to get the same valuation the investors are getting, that’s all.

> It’s not that tricky, because the investors are getting a valuation

That works ok in theory if you are signing a contract at the same time a round is finalizing... otherwise it remains tricky.

Re: Golden Handcuffs

#264

Post by B4CKlash »

alisonkisk wrote: post #160
B4CKlash wrote: post #127

Earlier quoted context omitted.

Another term for VC is risk capital. A diligent investor will only put what they can safely risk into the market. While your correct that money indirectly represents time, you’re overlooking the incremental utility of money. An investor logically values each incremental dollar less, purely evidenced by the fact they were willing to risk it. An employee on the other hand will turn those funds directly into shelter/foo…

You're saying that rich people should be paid less, a smaller multiple of what low paid workers get. You can make that debate, but it's not "equity vs wages". Someone getting paid $100M but no "equity" isn't worse off than someone getting paid $100M of valuated equity (ignoring liquidity discount blah blah)

It is 100% equity vs. wages. That’s how a financial statement works. Revenue – COGs – G&A – Taxes & Interest = Net income. That net income moves to the balance sheet as retained earnings. The higher the COGs & G&A cost the lower retained earnings and the lower the retained earnings the lower proportion of equity.

The premium equity achieves is largely as result of leverage – not value*. Employees might generate 100% of the revenue but get zero credit for the growth rate. In a book value sense both seem pretty even, but we don’t value growth companies at book… We value them with a DCF model (or a different model that takes into account future earnings). At T+0 you’re probably neck and neck, but as soon as you step into T+1, T+2, etc. the equity side will get credit for income it hasn’t earned yet while the wage earner is left the same (for the better or worse).

*related to my parent comment and the diminishing utility of money. Equity investors can afford to be choosey because they have wealth = aka options.

Re: Golden Handcuffs

#265

Post by walshemj »

toast0 wrote: post #217
walshemj wrote: post #73

Earlier quoted context omitted.

The opposite side is two of my ex employers (one from 20 years ago) shares are still paying tax fee dividends in my ISA and increasing in value.

If you work for a company that pays you cash money only, you can buy their shares in a brokerage account (taxable or tax-advantaged). If you work for a company that does RSUs, you have to wait for vesting, and it's not consistent money; it's nice when the stock price is going up, and it's not nothing when it's going down like options are, but if it's a publically traded company, why not just pay me the $x/year in dol…

Tax efficiency, leverage and more $$ - they wont pay you real $ in replacement for options.

Though the UK's a bit better I never paid any income tax, dividend tax or cgt.

Even my top of the line EMI I am only paying 10% CGT if it pays out

Re: Golden Handcuffs

#266

Post by anonyxyz »

ozim wrote: post #246
zuhayeer wrote: post #181

Earlier quoted context omitted.

Agreed. Also C-levels get parachutes and a bunch of custom clauses to help ensure they are compensated even in some pretty lopsided scenarios.

Have you tried to look for a job after being terminated as a C-level or when startup you put in many years goes under? Job market for IC is most of the time quite easy if you are technical, developers are usually spending 2 years at a company. I don't see C-level people switching companies on a whim and work one company for many years (not everyone is Elon Musk). Once you have C-level on your CV good luck finding job…

I should hope at C level comp levels, these folks can manage their money well enough to weather a multi year dry spell after a few years of gainful employment.

Re: Golden Handcuffs

#267

Post by rickspencer3 »

titanomachy wrote: post #185
rickspencer3 wrote: post #121

Earlier quoted context omitted.

From what I have seen, if you can be well paid, and put a significant portion of your salary into index funds, over the years, you will generate a modest nest egg, and have choices in your late middle age or retirement. This is a different path than betting on a startup you joined, and hoping that your options end up paying out, but, it is not a bad path.

That's true, if by "late middle age" you mean 38 years old. Netflix pays very well.

That's not what I meant, but congrats :)

Re: Golden Handcuffs

#268

Post by hansvm »

calderwoodra wrote: post #237
conjecTech wrote: post #99

This is horrific for employees. Ben Kuhn already nailed the math here[1]. The optionality embedded in long-dated grants is a huge fraction of total comp at high-growth companies and represent almost the entire right tail of outcomes. It also requires assumptions about the future, which is why companies generally abstain from quantifying what it's worth. It seems like the companies doing this are trying to arb that un…

Did I read Ben Kuhn's article right? For engineers at almost every level (except maybe right out of school), they can easily make 100k/yr more by choosing a big co. So if money is all you're optimizing for, it's never worth it to choose a startup unless you're very risk adverse.

I don't think that's the right takeaway. There were a ton of assumptions going into that +$100k cutoff, including that the initial exercise price for your bag of options would be less than the fair market value for a new grad's initial stock grant at FAANG. The emphasis of the article wasn't a particular number, but that startup options can be a little more valuable than they look, so it might be worth actually doing the math on some of the better offers rather than blindly going to FAANG.

Re: Golden Handcuffs

#269

Post by logicslave »

joshuamorton wrote: post #218
logicslave wrote: post #186

Earlier quoted context omitted.

Actually Amazon commonly beats Google comp, and matches FB. Senior employees at Amazon see the highest comp in the industry. Its less discussed, and really only at the lower levels that Amazon gets its reputation for being cheap and having lower talent. AWS Senior Engineers are top talent bar none.

L6 salaries (equivalent of FB/G L5) are 20-60K lower than those at FB/G (you cap out at 160K or 175K in the bay, which is below the minimum L5 salary at FB or Google). As I understand it, the stock grants can be similar but refreshes are harder to earn than FB/G (since if the stock goes up, you simply won't get a refresh unless your performance is stellar), and you don't get annual bonuses (which are another 30-50K i…

This is a misnomer. Go look at levels.fyi, L6 at Amazon is either matched or beats L5/E5. People dont know how much money Amazon really pays, they just hear about the mediocre performers. Amazon absolutely pays huge sums for top engineers, they just dont talk about it. I know of SDE2s making 450k before equity appreciation

Re: Golden Handcuffs

#270

Post by joshuamorton »

logicslave wrote: post #269
joshuamorton wrote: post #218

Earlier quoted context omitted.

L6 salaries (equivalent of FB/G L5) are 20-60K lower than those at FB/G (you cap out at 160K or 175K in the bay, which is below the minimum L5 salary at FB or Google). As I understand it, the stock grants can be similar but refreshes are harder to earn than FB/G (since if the stock goes up, you simply won't get a refresh unless your performance is stellar), and you don't get annual bonuses (which are another 30-50K i…

This is a misnomer. Go look at levels.fyi, L6 at Amazon is either matched or beats L5/E5. People dont know how much money Amazon really pays, they just hear about the mediocre performers. Amazon absolutely pays huge sums for top engineers, they just dont talk about it. I know of SDE2s making 450k before equity appreciation

> Go look at levels.fyi, L6 at Amazon is either matched or beats L5/E5

Looking at SF offers (to avoid the price differential between bay/Seattle), the median seems to be 300-350K for, with a few offers at like 450K and then 2 at ~650 (also some data entry errors like a 300K signing bonus).

The 650 offers are matched by FB/G L6 offers, and the 450K are high L5/low L6 at G/FB. 330 is approximately the floor for a G L5, and new hire offers will be higher due to the relatively larger sign on grants. Like I said, perhaps for peak performers the Amazon grants are larger, but they're not consistently beating G/FB, they're maybe matching.

Its also difficult to tell because the data in levels.fyi doesn't match my understanding of how amazon's stock refreshes work (or like its difficult to tell). My understanding is that you don't normally get a stock refresh, unless your existing one ran out, or the stock didn't grow "enough" (or, as mentioned, your performance is stellar). So if we're seeing the once-every-few-year-grants at Amazon and comparing to the annual grants at G/FB, that's even more against Amazon, but I could be wrong there. I don't know enough senior people at Amazon (though I do know more junior people at amazon, and the levels.fyi methodology doesn't seem to make a distinction when it asks for data).

> I know of SDE2s making 450k before equity appreciation

Fwiw I'm aware of these kinds of hires at most companies.

I'll admit though that my initial statement, that 350-400K was unreachable for an Amazon Senior was flawed. It is, but mainly because the the level is wider than the comparable level at G/FB.

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