Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

We need to rethink employee compensation

aaronkharris.com

Post reply on HN
Print view View original

41–50 of 413 posts

Re: We need to rethink employee compensation

#41

Post by MCRed »

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…

Worse, even with the %50 pay cut (or worse!) many startups expect you to take, the amount of options you're given are really trivial.

It is possible to value options using black scholes or other valuation metrics. But every time I've run the numbers the present day value of the options is never even 1/10th of the value of the salary you're asked to give up.

I've concluded the only way to do a startup is to be one of no more than 3 founders.

Then, if the shares pay off, the return might be worth the risk.

Re: We need to rethink employee compensation

#42

Post by Animats »

This is for the special case of options in successful startups, a problem which affects well under 1% of the workforce.

Nobody is going public because borrowing is so cheap, resulting in round after round of leveraged private equity. This may change when the Fed starts cranking up interest rates around the end of this year.

Also, the new JOBS act rules for small IPOs are now in effect. So far, nobody seems to have done much with them, but that's now an option for companies at the point they need a follow-on round.

Re: We need to rethink employee compensation

#43

Post by fredkbloggs »

JonFish85 wrote: post #11
drivingmenuts wrote: post #5

Earlier quoted context omitted.

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.

But even if you're fully vested, if you can't sell your shares, they're essentially worthless (technically the term is probably "illiquid asset"). Until there's an "event" (IPO, acquisition, probably more), they can't be turned into real money.

Not all illiquid assets are worthless. It's specifically the combination of being prohibited from selling and no prospects for ever receiving a dividend that make these shares worthless. In fact, a share you cannot sell but does pay dividends is very similar to the kind of revenue- or profit-sharing arrangements the author suggests.

Re: We need to rethink employee compensation

#44

Post by stephengillie »

JoeAltmaier wrote: post #24
toephu2 wrote: post #19

Earlier quoted context omitted.

Even if options vest, they could still be viewed as worthless. E.g., Pre-ipo company, 4 years pass, all your shares vest, however Company might tank in the next 5 years, goes bankrupt, never gets bought out nor goes IPO, your vested shares are worthless.

OR even succeeds, get bought out for 40 million dollars, which all goes to pay investors' convertible debt. Net result: stock worthless.

It's like being paid in IOU: "1% of this lottery ticket's winnings".

There's multiple layers of risk and trust, too many dependencies. The transaction is too complicated and takes too long to complete. So the probability for exceptions to occur is great, and handling for those exceptions will likely fail due to the complicated nature of the transaction.

Re: We need to rethink employee compensation

#46

Post by damoncali »

threeeeawae wrote: post #35
drivingmenuts wrote: post #5

Earlier quoted context omitted.

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.

The latest shitty clause that Valley companies are including in their options contract prohibits you from selling fully vested and exercised shares even if you have a willing buyer . Apparently companies saw all the employees getting rich from private companies like Palantir and Facebook pre-IPO and considered that a problem to be solved. Check your contract, you probably don't "own" the stock you think you do.

This is nothing new. And it actually makes sense. You can't have people running around selling restricted shares willy nilly. It wold be a nightmare.

Re: We need to rethink employee compensation

#47

Post by harryh »

mikeash wrote: post #15
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 wonder what the odds are that Mr. CEO was drawing an even crappier salary than what he offered you, since he no doubt had even more equity.

The odds are very good. CEOs at venture funded startups tend to have small salaries.

Re: We need to rethink employee compensation

#48

Post by x0x0 »

mpdehaan2 wrote: post #10
markcerqueira wrote: post #8

Earlier quoted context omitted.

"until they vest." Don't options typically vest after one year of employment? Is that "too far in the future?"

The typical thing I've seen is 1/4 of your options will vest after 1 year, upon which 1/48 of your options vest every month thereafter. Other companies may do it differently. Also if you leave the company early, you will usually have to pay some trivial amount (possibly thousands though) to keep the options. This has at least been the case at all startups I've seen. With the 1-year cliff in place, I'd rather options…

often much more than thousands -- I've personally spent $12k in strike price alone, not to mention the potential tax implications which can be ruinous if you aren't careful

Re: We need to rethink employee compensation

#49

Post by enjo »

threeeeawae wrote: post #35
drivingmenuts wrote: post #5

Earlier quoted context omitted.

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.

The latest shitty clause that Valley companies are including in their options contract prohibits you from selling fully vested and exercised shares even if you have a willing buyer . Apparently companies saw all the employees getting rich from private companies like Palantir and Facebook pre-IPO and considered that a problem to be solved. Check your contract, you probably don't "own" the stock you think you do.

There are some very tricky legal issues for companies when employees start selling on the private market. I will admit that I'm not terribly well versed on them, but IIRC these private sales essentially forced Facebook into an IPO that they weren't necessarily ready for.

Re: We need to rethink employee compensation

#50

Post by fredkbloggs »

paulpauper wrote: post #31

I don't mean to sound too dismissive, but this article is bunkum. SO I guess by the author's logic, Michael Bloomberg's net worth is zero because Bloomberg LP never went public? The private market is illiquid, but fundamentals will always trump liquidity. If you own equity, that equity - assuming there is no dilution or deterioration in the fundamentals of the underlying business - is wealth. Employee stock options a…

Mr. Bloomberg's privately held equity undoubtedly makes distributions to its shareholders. Stock that does not pay dividends and is unlikely ever to do so is not wealth; it's just a piece of paper. And if you cannot legally sell it to someone else, it's effectively worthless as there is no way to convert it into something of value. The exception is if you have a majority of the voting rights, but that's not what this article is about.
Post reply on HN