We need to rethink employee compensation

I read the article, based on the title, thinking "I wonder what the author is going to address regarding employee compensation." Was it addressing performance? Or perhaps socially valuable contributions which have been traditionally under-compensated (such as teaching)?

No. It was bemoaning how stock options offered to employees by a corporation might, might, be "worth less" when restricted sale is applicable.

Just so we are all on the same page, here is the definition of "stock option" as provided by Merriam-Webster:

> 2 : a right granted by a corporation to officers or employees as a form of compensation that allows purchase of corporate stock at a fixed price usually within a specified period (source: http://www.merriam-webster.com/dictionary/stock%20option)

The article then went into great depth skillfully supporting the author's thesis, done from the perspective of a partner at Y Combinator. All well and good, but what wages do "other people" make?

According to here:

http://www.census.gov/newsroom/releases/archives/income_weal...

The median household income in 2010 was $49,445 USD. The census does not mention stock options, though I think it reasonable to assume most US workers do not receive such consideration.

Within this thread, "MCRed" shared their experience with stock options:

> 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.

Since "MCRed" states the options were worth "a year's salary", it is safe to state that "MCRed" made at least $100,000 USD per year.

And "varelse" writes:

> Given that a seasoned and in-demand engineer can make anywhere from $250K to $500K annually working for a big co, without a 3-letter title and 3-letter title equity, there seems little incentive to accept $150K or less and ~0.5% or less equity.

All of this leads to this simple, direct, question: how much do you think people outside of "tech" make in their jobs? Based on the median household income quoted above, the likelyhood is 1/5 to 1/10 what "varelse" estimates (which I think is high nationwide) and minimally 1/2 what "MCRed" was once given above and beyond a paycheck for at least the same amount.

We, all of us in tech, need a reality check. There are literally millions of people in the US along (not including 6.5+ billion other people in the world) which do not come close to "just" the base salary many of us enjoy. And before anyone says "but the market demand...", I say be honest with yourself.

And yet many are boo-hoo'ing over "gee, I didn't get Even More(TM)!"

I tell ya what. Stop by the Walgreen's on Market and 9th (IIRC) in San Francisco and ask someone working there whether or not their stock options offerred to them when hired was worth it for making $50,000 USD less per year. For bonus points, present the same question to the Uber driver dropping you off.

PS: "MCRed" and "varelse" are only two representative examples. Other statements in this thread would serve equally well and I bear no malice toward either "MCRed" or "varelse."

I'm happy to accept dilution, and will dilute the value I consider the shares accordingly. Since there are plenty of ways to dilute out shareholders, I'll pretty much dilute the value of those shares down to slightly above $0.

I'd actually like to lay the blame where it belongs, at the feet of YCombinator (the incubator, not the commenter crowd). YC's boilerplate options plans included share transfer restrictions and made early exercise (83b elections) out to be the bogeyman. Almost every YC company has the same option plan because of PG's tutelage. People copied these plans because "hey it's what YC does."

Let's be perfectly frank and talk about the facts here:

1) There is zero cost to the company to allowing 83b elections. All it does is remove the possibility of golden handcuffs (which are very effective when a new unicorn is minted every week).

2) There is no more "500 shareholder rule" after the JOBS act. It removed that. There is no penalty for having lots of shareholders -- especially when most stock transferred has no voting rights and no disclosure rights. Facebook "paid the price" for having lots of shareholders but in reality they did not. GS's investor vehicle took care of that. Facebook was not "forced" to go public. They went public at an incredibly old age as far as growth companies go.

3) There's an almost non-zero cost to have another company (like SecondMarket) handle share registration and transfers. It's not a huge overhead. Consider it your Nerf ammunition cost for the quarter.

4) The state of current stock option agreements is not to help you the employee. It's for the benefit of the company. Option agreements in the 80's and 90's did grow out of an altruistic "hey we're all in this together" theme. Today, it's "hey I have to give you these things because everyone else does, but if it were up to me, you would get bupkis and free meals."

Full disclosure, I work at a YC funded, non-unicorn. My shares (on paper) are worth a fair amount of money, and I need several $100k to buy the shares and pay taxes. I feel like I'm in a not-uncommon state. I know my options are technically worth zero right now since I can't sell them for anything (that is the definition of worth), but I know my wife will divorce me if I quit and walk away from them.

I've heard that Uber is supposedly the worst at this. There's no timeline specified in the option agreement. You must offer them right of first refusal, but there's no mention of timeliness. They can (and do) choose to ignore every share transfer that comes up in a board meeting (unless you're in the elite inner circle and are allowed to sell shares).

tl;dr Don't even consider a position at a company whose option agreement won't let you early exercise and won't let you freely transfer shares.

Founder here. Not sure what you're talking about. Talented people are expecting healthy salaries in this market and decent chunks of equity. I'm the least paid person on our team, take significant risk ( if the ship goes down I go down with it ) and I have just 6x more equity upside than our top compensated employee (who makes 3x my salary now).

You're discounting the value of preferred stock vs common stock. Funding rounds sell different series of preferred stock. The relationship from common to preferred stock is loose at best, despite what any 409a "valuation expert" claims.