[HN Gopher] Startup Stock Options - Why A Good Deal Has Gone Bad...
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Startup Stock Options - Why A Good Deal Has Gone Bad (2019)
Author : simonebrunozzi
Score : 308 points
Date : 2020-12-21 10:30 UTC (12 hours ago)
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(TXT) w3m dump (steveblank.com)
| ghufran_syed wrote:
| YC has historically had a big influence on improving financing
| terms for founders and reducing founder-hostile behavior by
| investors, by creating competition among investors for YC
| companies. Should YC maybe consider developing and enforcing a
| code of conduct addressing these issues, that might similarly
| improve the situation for start-up employees?
|
| They could maintain a public list of YC companies that abide by
| the code of conduct in order to encourage good behavior, and to
| help communicate to potential employees that they would get a
| "fair" option deal (as early investors, they would clearly have
| access to the terms of any financing deal).
|
| [EDIT: they could also maybe publish a list of investors who have
| committed to following the guidelines, and consider excluding VC
| firms from YC events if they won't commit to those standards]
|
| Depending on how serious YC was about making a difference here,
| going against the code of conduct might even be grounds for
| exclusion from the YC community? My understanding is that YC has
| always focused on what's best for the founders, even when they
| were the outsiders in silicon valley and at their own financial
| expense. Maybe now that YC is such an important player in the
| silicon valley ecosystem, they could use that power to maintain
| the health of that ecosystem in a way that few others could?
| chubot wrote:
| Blog post from 2014: https://blog.samaltman.com/employee-equity
|
| That's more of an admonishment, but at least they recognized
| the problem ...
| snowmaker wrote:
| (I work at YC)
|
| Yes, we care a lot about making employee equity more generous
| and more fair. Part of our YC curriculum now is teaching
| founders about these issues and encouraging them to follow
| best practices around being generous and transparent with
| employees about equity compensation like Sam discussed in his
| blog post.
|
| I think there is still a lot more we can do, though.
| freewilly1040 wrote:
| Teaching founders is one thing, but equally as important is
| providing a platform that prospective employees can use to
| find out which startups are giving employees a fair deal.
|
| Speaking as a bigco eng who would love to join a startup,
| but is disillusioned by the economics of it.
| simonebrunozzi wrote:
| Good to hear this.
|
| I would be happy to spend an hour on a call with you and
| provide my very humble suggestions, if you're up for it. My
| HN username at gmail.
|
| Edit: of course we can do this over email, too. I just feel
| that in the year of Covid, you don't throw away an
| opportunity for a warmer human connection.
| fortran77 wrote:
| Exactly. If you're not a founder or investor, expect your options
| in a non-public company to be worth zero. There are a dozen ways
| they can dilute them to worthlessness.
|
| You'll have a much better chance of making money on stock and
| stock options if you join an already-public company that has an
| ESPP and regularly grants stock options for their publicly-traded
| stock as incentives to the employees.
| ransom1538 wrote:
| What makes options a rough deal is the part of the contract: "We
| can change anything at anytime for any reason". What kills your
| options is dilution. You have no control over this AND as time
| progresses you get more and more diluted with new hires and
| rounds. You could be the second employee - however, if the
| founders & VC decide to make 20 million more shares [which they
| will] - you effectively have toilet paper -- AND you wont be in
| that meeting.
| mason55 wrote:
| > _What kills your options is dilution. You have no control
| over this AND as time progresses you get more and more diluted
| with new hires and rounds._
|
| People are way too obsessed with dilution because it sounds so
| scary. "With the stroke of a pen they can create a billion more
| shares and your percentage goes from 5% to 0.01%"
|
| The reality is that all common shareholders have the same
| incentive to not dilute the outstanding shares. That almost
| always includes the founders. Outside of a money raise most of
| the people involved in the company are aligned in the desire to
| not dilute each other.
|
| The major source of dilution is new fundraising and while it
| will effect your percentage of ownership it typically doesn't
| affect the value of your stake because the dilution is part of
| post-money valuation. So you might own 1% of a $10m company
| before the dilution and 0.5% of a $20m company after the
| dilution but the value of your holding didn't change.
|
| The things people should be worried about are all the
| shenanigans that happen around participating preferred
| multiples. Or, the worst, 30-day exercise windows along with
| the tax treatment of options exercise/AMT. But since those are
| much more opaque concepts it's way harder to get people riled
| up about it.
|
| And if you have an unscrupulous CEO there's basically nothing
| you can do to protect yourself as a worker. But that's way
| different from the normal dilution you get as part of raising
| money.
| ransom1538 wrote:
| "So you might own 1% of a $10m company before the dilution
| and 0.5% of a $20m company after the dilution but the value
| of your holding didn't change."
|
| Nope. If you are topped up (which means you still have
| political standing) then you start a new vesting schedule. So
| all those shares you worked for and vested -- you can work
| for again!! Yay! Until another 4 years you are diluted. Yay!
| But likely there will be another round while you wait to vest
| the shares you already had!! Hahahaha!
| mason55 wrote:
| A top-up would increase your number of options (and thus
| your percentage), that is different from the
| value/percentage not changing as part of a new raise.
|
| Unless you're talking about the cap table being completely
| wiped but that's a different scenario and I wouldn't
| consider that to be part of dilution.
| ForHackernews wrote:
| > So you might own 1% of a $10m company before the dilution
| and 0.5% of a $20m company after the dilution but the value
| of your holding didn't change.
|
| If that is indeed true, then there's almost no reason not to
| demand being paid in real cash money rather than stock
| options. If the company doubles in value and I have the same
| amount of money, then what's the point of getting options
| instead of USD?
|
| This like saying, "don't worry, your lotto ticket won't be
| devalued: We'll make sure that even if those numbers win the
| jackpot, you'll still get the same $2 and it won't be diluted
| below that."
| mason55 wrote:
| > _If the company doubles in value and I have the same
| amount of money, then what 's the point of getting options
| instead of USD?_
|
| Huh? You should compare the current value of the options to
| their value at the last fundraising round, not between pre-
| and post-money in the same round.
|
| The doubling in value happen between (e.g.) the Series A
| raise and the Series B raise, not at the time of the Series
| B raise, and when you compare the value of your options
| between the raises that's when you'll see the increase in
| value.
|
| For example, imagine you have 10% of the company and after
| the Series A raise the company is valued at $1m, so your
| share is $100k. Now you go and work for two years and
| increase the value of the company to $20m (pre-money). Your
| 10% is worth $2m now. If the company raises $5m for 20%
| ($25m post-money) in a Series B you now have 8.3% of the
| company (you were diluted) but your 8.3% is still worth
| $2m.
|
| The stock option reward happens while you're building the
| company.
| ForHackernews wrote:
| If it's a privately held company, then I think you could
| reasonably argue that the "pre-money" valuation is
| illusory. There's no market price, and the company is
| only worth whatever investors can be convinced to pay for
| it.
|
| To take your example: my hypothetical 10% isn't worth $2m
| -- it's worth an unknown amount (one hopes more than the
| $100k it started at). Only after somebody is willing to
| pay $5m for 20% of the company can one realistically say
| what my (now 8.2%) shares are worth.
| mason55 wrote:
| Ah, in the context of this conversation "pre-money" means
| the value of the company before taking into account the
| cash raised in the current round. It doesn't mean a
| company that's never taken any outside investment. It's
| perfectly reasonable to talk about a pre-money valuation
| that has a market price. If you raise $20m for 20% of the
| company then you can say the company had a post-money
| valuation of $100m or a pre-money valuation of $80m, and
| both of those numbers are market-based.
|
| The poster I was replying to seemed to think that the act
| of raising money is what should increase the value of
| your shares, which is not the case.
|
| See here for more info on how the terms are used:
| https://www.investopedia.com/ask/answers/difference-
| between-...
| contingencies wrote:
| _We can change anything at anytime for any reason_
|
| In private companies, always remember: (1) control [?] equity
| (2) equity [?] profit (3) equity [?] information.
|
| If this is new to you read Brad Feld's _Venture Deals_ book and
| do the online course, it 's time well invested.
|
| Note this is simply the nature of private equity. Companies go
| public to drink at the capitalisation trough of public markets,
| but the cost is regulation and increased transparency.
| Companies that stay private are rarely bound by significant
| rules in terms of board or management decisions redefining
| structure, equity, terms and so forth. There are _at least_
| four key firewalls (exercise, issue, share class, transfer)
| between "options" as issued or promised and meaningful equity
| value extraction for an employee. Good lawyers can probably
| name five more, and definitely dream up or deploy tens more at
| any time without breaking laws.
| marcus_holmes wrote:
| I learned this in my first board position with VC's on the
| board (early 2000's). Thankfully I was vital to the company's
| platform, so had some leverage. But _everything_ was fluid,
| and able to be changed according to how the VC 's needed to
| present it in terms of a consistently successful investment
| story.
|
| In the end, I walked away with less than I hoped but more
| than I think I deserved (for being so naive). But it's been
| an abject lesson since: nothing in a private company is
| fixed, it can all be changed according to who pulls the
| strings. Options and equity are very vulnerable to this.
| Having equity is no guarantee of power or even a seat at the
| table (or of future wealth).
| Waterluvian wrote:
| I bought $1000 of shares at a company when I left. $0.75. Their
| valuation at the time was like $18.
|
| In retrospect I'm pretty sure all I did was buy myself a tax
| burden when they fold or pocket change when they exit.
|
| The mistake I made was not realizing the parent comment: that I
| lack the information to make an informed decision or to be sure
| they don't just dilute to oblivion. The numbers I did have
| access to (above) communicated a very misleading story to me.
| fortran77 wrote:
| The tax implications make this deal a bad one nearly every
| time. It's simply not worth taking the chance.
|
| (BTW: Congress bailed out dot-com specu-vestors who claimed
| not to understand the tax event that occurrs when exercising
| options. https://www.mercurynews.com/2008/11/10/rescue-bill-
| offers-re... )
| dehrmann wrote:
| There was on place I left where the company was doing OK, but
| there were a lot of red flags on exercising options, so I let
| them expire. Someone asked why I didn't just exercise some
| for fun. I didn't want to have to do the taxes. Not pay the
| taxes, I mean fill out the forms.
| commandlinefan wrote:
| This isn't new, either - this happened to me a couple times in
| the late 90's/early 2000's and I've since made a point of not
| even taking "stock options" into consideration when evaluating
| job offers. Yet my most downvoted comment on reddit ever was on
| /r/cscareerquestions when somebody was asking how to weigh
| stock options when considering job options and I said "not at
| all" and shared my own experiences.
| PragmaticPulp wrote:
| That's strange. My experience with /r/cscareerquestions and
| other online forums has been excessive cynicism about
| everything, especially stock options.
|
| The catch is usually when people are asking about RSUs of
| public companies or other relatively liquid and predictable
| compensation, in which case equity comp should definitely not
| be valued at $0.
| fatnoah wrote:
| >Yet my most downvoted comment on reddit ever was on
| /r/cscareerquestions when somebody was asking how to weigh
| stock options when considering job options and I said "not at
| all" and shared my own experiences.
|
| I'm pretty sure I had the exact same experience. I've been a
| part of three startups. One took nothing more than seed money
| and has been chugging along for over 15 years. It's a
| lifestyle business for the owner, so it also hasn't grown at
| all in over 10 years. The other two startups were both
| acquired. I was even a VP at one with over 1% equity in the
| company. Net value of my options was $0 after investors,
| credit holders, and founders got paid.
|
| Yes, some folks are going to make millions from IPOs, but the
| opportunity cost is far too high (IMHO). As a VP at the
| startup, my total compensation with 15 years of experience
| wasn't a whole lot more (and less, in many cases) than what a
| new college grad makes nowadays.
|
| Now that I've got a family, college to pay for at some point
| in the near future, and a retirement to fund, I'll gladly
| take the sure thing vs. the gamble. I've bid goodbye to
| startups and have quadrupled my income in doing so.
| offtop5 wrote:
| Reddit tends to be younger people without much life
| experience. When you're 20 years old and a startup offers you
| all this equity it does sound really good, but when you're 38
| and you realize that equity isn't worth the paper it's
| printed on, you'd rather get more cash comp
| marcus_holmes wrote:
| That's been my experience with the startup/entrepreneur
| subreddits too - no-one wants to hear anything that
| contradicts the Startup Dream. I figure there are very few
| people actually walking the walk in there.
| VRay wrote:
| The site is engineered in a way that makes it useless for
| any sort of expert information. If you know less than the
| average Redditor about something, it's GREAT, but otherwise
| it's best to just steer clear.
|
| Everybody gets an upvote button and a downvote button from
| day 1, and they'll downvote to oblivion anything they don't
| instantly resonate with. It turns every large-ish subreddit
| into an echo chamber pretty quickly
| acdha wrote:
| I've been surprised by the degree to which people who pride
| themselves on being analytical badly _want_ to believe that
| options will make them rich. They'll talk about the few cases
| where the finance guys didn't capture most of the wealth and
| ignore all of the people who eventually netted a few months
| salary or less (I'm reminded of the people from meetings with
| pets.com who were visibly just keeping a chair warm until the
| IPO made them rich, and ended up calling to ask if we were
| hiring later that year when the layoffs started).
|
| It's a cliched observation but it really does remind me of
| the kids hoping to make it big in pro sports - there are way
| more who peak at the minor league level at best but the
| owners make a ton of money by encouraging everyone to think
| of the exceptions as the rule. Humans are prone to misjudging
| statistics in general and that's really bad when one party
| has the best data and a strong incentive for other people to
| misjudge it.
| voodootrucker wrote:
| It's a very interesting trend - opinions that got me down-
| voted into oblivion on HN in 2015 are now super popular. The
| biggest part of the change seemed to happen when Trump got
| elected. Anecdotally, it seems like that was the moment when
| this community lost it's innocence, stopped trusting
| authority, questioned it's own narratives, and in a sense
| grew up.
| umanwizard wrote:
| If the founders have the same class of shares as you, will this
| effect them equally?
| itake wrote:
| Not if they just issue themselves more shares
| cj wrote:
| > Not if they just issue themselves more shares
|
| This doesn't happen in the real world.
|
| When more shares are issued, it's because you've raised
| another capital round and the new shares go directly to the
| new shareholders (new VCs) and future employees who haven't
| yet been hired.
|
| New shares wouldn't go to the founders.
|
| Yes, it's hypothetically possible, but it doesn't happen in
| the real world.
| [deleted]
| jariel wrote:
| CJ it happens frequently enough that 'it's a thing' and
| it happens all the time.
|
| Usually in conjunction with a new round, but not always.
|
| The company will do a massive 'down round' - even lower
| than what they really want, bring on new investors. Then
| issue shares to current staff founders.
|
| That is de-facto like handing over equity from previous
| staff to new investors - you could almost do the math for
| how much 'old employees' stock was sold to new investors
| wherein said old employees didn't get a dime.
|
| It's generally going to happen in negative situations,
| but that happens a lot.
|
| Edit: and it's not something your ever going to hear
| about, it's obviously not something leadership wants
| anyone to know about. Even 'former employees' who were
| washed out may not find out - how would they? They're not
| entitled to be notified upon new issuance of shares.
| s1artibartfast wrote:
| At venture capital law firms, they have an endearing term
| for it. They call it a "cram down, pull through" deal.
|
| It is most common when potential investors have most of
| the leverage, but there are some holdout stakeholders
| which can also sink the round.
| konschubert wrote:
| It happens regularly and it's called a re-up
| http://christophjanz.blogspot.com/2018/11/founders-
| please-do...
| cj wrote:
| The article is from 2018, and reads:
|
| > In the last year, we have seen, on more than one
| occasion, a behavior among later-stage VCs that we've
| rarely observed in the years before
|
| Which seems to imply it's not a common practice. As I
| mentioned, it's 100% theoretically possible to do it, but
| the percent of companies that actually do it is very low.
|
| It would be not only bad for early employees, but also
| bad for early investors - it would hurt the founders
| reputation among their early investors (and employees)
| which most founders wouldn't be willing to do.
| rutthenut wrote:
| Your points about why this is bad are entirely correct.
|
| But founders with shareholding may (do) work with later
| investors to their joint benefit, screwing over other
| early shareholders or investors. With VC money holding
| shares already, that is not so likely to happen - unless
| it is the VC buying-in more equity. However, smaller
| enterprises with startup beginnings are very likely to
| follow this pattern, as later investors (and perhaps
| greedy founders) do not care about those that came
| before.
| mizzao wrote:
| Great article! I'd heard about this maneuver only in
| theory before and never saw it written up.
|
| Sounds like a bit of a moral hazard / principal agent
| problem for founders!
| wrnr wrote:
| They can negotiate for more shares for theme-selfs.
| ashtonkem wrote:
| Increasingly, negotiating a job offer at a startup feels like
| buying a used car. There's an obvious information asymmetry,
| and it's hard to escape the feeling that you're getting
| screwed.
| naveen99 wrote:
| That would be true weather you had shares or options...
| dilution may be worth it, if valuation grows. It's only bad if
| there is a down round. But then it's a black eye for founders
| and earlier vc also.
| Traster wrote:
| I think you need to consider your framing. "It's only bad if
| there is a down round" - actually, it's good only if they go
| from giving you options to cashing out without a single bump
| in the road. The likelihood of all those bad things happening
| - down rounds, bad exit, no exit, folding completely, etc.
| those are the _most_ likely thing to happen. And if you 're
| in the company earlier they're _way_ more likely than
| anything else.
| JoeAltmaier wrote:
| Investors get convertible stock etc. If its a unicorn, maybe an
| employee has a chance. Anything less, the investor turns their
| $1M investment into a $10M debt or whatever, and soaks up the
| entire buyout.
| [deleted]
| annoyingnoob wrote:
| Its funny, I've been sitting on some shares for about 7 years
| since an acquisition, the company is buying them back this month.
| I had written the company and the shares off and somehow in 2020
| they pulled the nose up. Really looking forward to the final
| payout!
|
| I feel really fortunate to have had what Steve calls a 20th
| century deal in the 21st century. I was able to maintain an
| undiluted share of the company, which interestingly I was never
| able to do in the 20th century.
| silentsea90 wrote:
| Slightly related, Stripe now gives fixed $ amount of RSUs per
| year to new hires, which limits both upside and downside
| significantly. Not to act cynical, but to me it seems that this
| is another way of screwing employees by denying them stock
| appreciation on their initial grant. I understand that new hires
| would be signing off on this while joining so the rug isn't
| pulled beneath their feet, but this does seem like a start of a
| bad trend which if it catches on, will further the gap between
| employees and founders
| joshuamorton wrote:
| > Slightly related, Stripe now gives fixed # RSUs to new hires,
| which limits both upside and downside significantly.
|
| Pretty much all companies start doing this once they get large-
| ish (snap, airbnb, lyft, uber, etc. all did essentially the
| same thing).
|
| At the valuation stripe has, I'm not seeing the downside, given
| that the upside of options is limited once you're the size of
| stripe today.
|
| > but to me it seems that this is another way of screwing
| employees by denying them stock appreciation on their initial
| grant
|
| How? If I'm granted 100 RSUs, and the company value doubles, my
| RSU value doubles. Fixed # of RSU is the better way (imo) in
| comparison to fixed dollar amount grants.
| silentsea90 wrote:
| I reworded my comment - but I meant that you're guaranteed
| (say) $100k worth of stock every year, so the #RSUs will be
| calculated at the start of each year. If the valuation of
| Stripe is 70 Billion today and one gets granted 100k worth of
| stock this year (say 100 units), if valuation is 140 Billion
| next year, employees get 50 units next year (ignoring
| dilution etc), instead of 100 units each year.
|
| I meant that it is fixed dollar amount not fixed RSU count
| per year at Stripe, if that helps clear it
| joshuamorton wrote:
| Ah, yes, that is the blehh approach.
| logicslave wrote:
| Startups are a financial vehicle created to transfer the value
| created by the employee to the founders and capitalists.
|
| Often the founders have done very little of value before hiring a
| team to actually build the company. These people toil away, a
| decade later, the founder makes 20-100 million, the first
| employee, a few hundred thousand.
|
| There are exceptions, but this is largely what it is.
| pjbk wrote:
| Unfortunately that is mainly the case these days.
|
| In theory it would make more financial sense that most
| companies at the startup stage would be fully employee-owned,
| considering the equity and tax scenarios. But what founders are
| open to that? It amazes me that still there are/were people,
| myself included, willing to partake in a rigged endeavor
| plagued with pitfalls and restrictions, compared to other
| business models out there.
| jhowell wrote:
| > One possibility is to replace early employee (first ~10
| employees) stock options with the same Restricted Stock
| Agreements (RSAs) as the founders.
|
| I am sure RSA are and will always be available to those with the
| skilleset that commands this level of compensation. I am unclear
| what would motivate the founding team or investors in a start-up
| to act otherwise.
| brabel wrote:
| Why would anyone want to work for your startup when they can
| get much higher salaries working for larger companies?
|
| Stock options used to be that differentiator for startups...
| now it's just an empty promise in most places.
| guywhocodes wrote:
| Personally for me it has always been faster personal growth
| from wider responsibilities. This makes a lot of sense in
| some stages of your career and your career goals but hardly
| for everyone.
| mlthoughts2018 wrote:
| I've never heard of any startups where you can obtain
| faster skill or personal growth. "Wear many hats" means you
| must be whatever type of firefighting janitor the company
| needs this week, which often causes skill _atrophy_ not
| skill growth.
|
| Larger companies not only offer better compensation, but
| usually offer much better career development,
| responsibility growth, training and "learn by doing"
| opportunities.
|
| The startup will promise you won't be blocked by
| bureaucracy and as an early hire you can lead the design.
| Total lies. The bureaucracy and dysfunction will be even
| worse and probably involve a bunch of immature egos and
| "the design" will be endlessly compromised to get each
| successive round of diluting funding that yokes you to more
| and more traditional management bureaucracy through VCs.
|
| After experiencing the special hell of unrestrained
| founders who don't know what they are doing and nepotism
| hires all through middle management, most people quickly
| realize it's an insane trap and wish for the comfort of
| large firm bureaucracy, where at least there's some minimal
| policy protection against sexual harassment or cultivating
| alcoholism as a company value or generally grinding
| unwitting young people into the ground with 80 hour weeks.
| drunkpotato wrote:
| The variation in startups will be much greater than in
| corporate America, so some startups will be well run, but
| some will be more badly run than any large company and by
| some truly vile people. It's definitely a gamble.
| Unfortunately, people just out of school lack the
| experience to judge, so some get lucky and some get taken
| advantage of. My advice is to treat options like a
| lottery ticket, make sure you get paid well in cash, and
| then startups can be a heck of a lot of fun. They won't
| pay a google compensation, but enough to be comfortable,
| and hey, maybe you get lucky!
|
| Early non-founder employees do tend to get screwed
| relative to the business vultures who show up later, the
| CTO getting $10 million/year brought on after the company
| has gone public but did nothing to get it there is just
| wasteful corporate cronyism.
| jariel wrote:
| "but usually offer much better career development,
| responsibility growth, training and "learn by doing"
| opportunities."
|
| Usually the opposite.
|
| At many large companies, people are frozen in operating
| jobs, and almost 'do' nothing.
|
| Bell Canada (like Verizon), massive organization full of
| staff graft.
|
| Companies that have a lock on revenue, fat monopolies,
| are where people park themselves.
|
| Directories with large teams that do almost nothing.
| Years to make the smallest change in customer service
| inquiries etc..
|
| The 'real' advantage at working at a startup, in my view
| - is that you actually get to 'do stuff'.
| andrewingram wrote:
| I think it's more that if you're already the kind of
| person well-suited to float to the top at a startup,
| that's what you'll get out of it. But a startup will
| rarely develop you into that kind of person.
|
| My own experience with after 8 years at various London
| startups is one of career stagnation because (for various
| personal reasons) I don't have a personality that lets me
| thrive in these environments.
| dasil003 wrote:
| Big corporations will give you more opportunity to "learn
| by doing" than a startup? Hard to take your comment
| seriously when you say something like that.
| mlthoughts2018 wrote:
| I can tell you haven't worked in many startups. The work
| quality is poor - you are basically firefighting all the
| time. You're certainly not building new systems or
| learning how to scale, etc.
|
| If you work at a startup the trick is you have to take
| the 5% of your work that's interesting and try to make it
| seem like that was the 95%, when in reality the 95% is
| doing all the grunt work because the company cannot scale
| staffing to distribute that work evenly or according to
| specialization.
| Nimitz14 wrote:
| This does not match my experience.
| mlthoughts2018 wrote:
| Then you have an extremely rare experience.
|
| It's like a professor who did happen to get tenure
| listening to all the post docs talking about how awful
| academia is. I'm happy for that one lottery winner but
| their experience doesn't count for anything.
| jariel wrote:
| Totally the opposite.
|
| Most startups are dynamic, most big corporations are not.
| They are 'big' because they are sitting on a value chain
| monopoly.
|
| The same chocolate bars have been in my grocery aisle for
| 20 years. Variations on the same soap.
|
| Some startups are very poorly run, but most are not led
| by 'unrestrained jerks'.
| mlthoughts2018 wrote:
| No, it's not like this. Most startups promise to be
| dynamic as a tactic to pay people less and swindle them
| on poor options deals, then they bait and switch you, the
| work experience is not as advertised.
| Nimitz14 wrote:
| Lol, have you considered it might be you who had the
| extremely rare experience?
| mlthoughts2018 wrote:
| If it weren't for all the ubiquitous articles talking
| about bait and switch startup jobs, poor startup
| compensation, cheating founders, controlling VCs, slave
| driver mentality, rip off stock options, and the poor
| survivability of companies, you might have a point.
| cik wrote:
| I work with startups because of the array of possibilities -
| none of them monetary. I've never cared about shares, and
| mentor folks to do the same. If you do what you love you
| never work a day in your life. But if you chase the pot of
| gold, you have to hope there's always sunshine after the
| rain.
| ClumsyPilot wrote:
| So if people enjoy there work we don't have to compensate
| them competitively?
| johannes1234321 wrote:
| The compensation has to cover the needs/expectstions. See
| Maslow's hierarchy as a simple model.
|
| Pay me a million for something I don't care about in a
| bad environment and I won't do good work.
|
| Pay me 50k (I make more, but 50k is a good value for a
| good living here in the region) and let me do something I
| like in a fun environment and I get things done.
| srtjstjsj wrote:
| Why are we talking about good work? Whether the work is
| good isn't the employee's problem. I'd love to get $1m/yr
| for bad work, so I can put that money to good use.
| Ygg2 wrote:
| See gaming industry.
| cik wrote:
| I don't see how what I wrote led to this assumption. It's
| just that I don't value the shares in a startup - ever. I
| value the salary side, and enjoy the interesting work.
| hajimemash wrote:
| To many people who value $$$ to get other important
| things in their life, shares are a meaningful factor in
| their expected value from devoting their life to a job.
|
| So when you say you don't work at a startup for monetary
| reasons, and that you don't care about shares, which has
| an expected value of real money despite the uncertain
| outcome, it's natural to wonder if you don't care about
| compensation aka money.
| caust1c wrote:
| Work at a startup in a field you love with coworkers who
| also pour their blood sweat and tears into the company,
| only to have the founders fail upwards and employees left
| with nothing. Then you might feel differently.
|
| Founders shouldn't be exiting with massive rewards when
| the risk they took was only marginally higher than early
| employees.
|
| Yeah, I enjoyed my time there and I learned a lot. But a
| mismanaged company shouldn't reward the management and
| leave employees with nothing after all is said and done.
| cik wrote:
| Been there, done that several times. Everything has
| risks, I've optimized for the ones I'm comfortable with.
| cddotdotslash wrote:
| > Why would anyone want to work for your startup when they
| can get much higher salaries working for larger companies?
|
| As much as I agree with the "lottery ticket" mentality, this
| line of thinking has been popular to parrot on HN for at
| least 5-10 years. And as far as I'm aware, startups don't
| have much trouble attracting senior talent. So until that
| changes significantly, they are going to continue offering
| lower salaries and bigger lottery tickets for as long as they
| can. Why would they do otherwise?
| hn_throwaway_99 wrote:
| > And as far as I'm aware, startups don't have much trouble
| attracting senior talent
|
| That seems like a pretty broad assessment to make on a
| hunch.
| cddotdotslash wrote:
| Admittedly I'm just speaking from conversations within my
| own network, but if hiring this kind of talent was
| significantly difficult then I'd expect to see broad,
| industry-level changes to how startup compensation was
| done. Companies can't survive if they can't hire people,
| and yet the same ISO practices remain aside from a few
| recent trend setters. So it seems most of the eligible
| candidate pool is still accepting this form of
| compensation.
| [deleted]
| dpeck wrote:
| RSAs for early employees (everything before an investment) isnt
| uncommon.
| mobjack wrote:
| You need to pay taxes on RSAs when granted so they mainly make
| sense when the share price is really low on paper.
|
| Once the valuation is higher, RSUs can shield employees from
| paying taxes until a liquidity event.
| JumpCrisscross wrote:
| > _I am unclear what would motivate the founding team or
| investors in a start-up to act otherwise_
|
| RSAs and RSUs are far less liquid than equity. They can
| typically only be sold into a company-wide liquidity event.
| roflc0ptic wrote:
| I just started working somewhere that does a different equity
| scheme called "profit interest." The gist is, they issue you
| equity whose worth is based on growth in valuation from when you
| joined. So if you're granted 1% shares and the company grows from
| 100m to 200m on liquidity, you're entitled to 1m. It avoids you
| having to front money for stock options, and it also avoids the
| tax burden b/c when issued, the shares are worth zero dollars
| simonebrunozzi wrote:
| I believe that the tax treatment of your hypothetical Million
| dollars is different than the treatment of an equivalent
| Million dollars earned through stock options.
|
| I am not an accountant, so please correct me if I'm wrong.
| roflc0ptic wrote:
| I think it falls under capital gains.
| dd36 wrote:
| Doesn't that just mean you work for an LLC?
| brianwawok wrote:
| Yah, I think this is fairly common in the LLC world. You
| don't want to get equity in LLc, equity = tax burden. You own
| 1% equity in a LLC and profit 100 million dollars?
| Congratulations, you now owe the tax on 1 million in income,
| even if you saw none of the income and have no way to sell
| your shares.
| roflc0ptic wrote:
| Yes, it's an LLC.
| mizzao wrote:
| Are you at one of the 4Catalyzer companies?
| roflc0ptic wrote:
| Nah, distributed ledger stuff.
| marcus_holmes wrote:
| Private company valuations are invented out of whole cloth by
| the board for lots of reasons, almost none of which are an
| accurate reflection of the actual growth of the company. Same
| for profit sharing - profit is an entirely invented number. It
| doesn't really solve the problem of options being too easy to
| fiddle and too hard to cash in.
|
| I get the tax advantages of this, though. But I expect if it
| became common the taxman would want their cut of the nominal
| growth in value each year, or something. Bastards.
| thomasahle wrote:
| > So if you're granted 1% shares and the company grows from
| 100m to 200m on liquidity, you're entitled to 1m. It avoids you
| having to front money for stock options, and it also avoids the
| tax burden b/c when issued, the shares are worth zero dollars
|
| Isn't that just like normal stock options?
| konschubert wrote:
| It appears to simulate the normal stock options. Seems to be
| motivated by tax reasons.
|
| I think I've seen this called a "virtual option plan".
| londons_explore wrote:
| It might behave differently to dilution too...
| rutthenut wrote:
| The 1% options would be one percent of shareholdings at the
| time the option was offered.
|
| With more shares created/sold later, the dilution means when
| the options mature, they will be less than 1% of the total
| company shareholding, or value.
| chollida1 wrote:
| Help me understand this as it sounds interesting.
|
| So when do you get this equity? Is it only at a liquidity
| event?
|
| Because normally you pay taxes when you get something of value,
| equity in this case but you can't always sell said equity due
| to your company being private.
|
| I'm assuming your company is private as a public company
| doesn't have these issues, they just give you stock, you sell
| stock, everyone is happy.
|
| Or put another way, how does this setup not give you a tax bill
| each year, assuming you get your equity each year, that you
| have to pay with your own cash?
| roflc0ptic wrote:
| So I'm fairly ignorant about these things, but I'll give it a
| go.
|
| My company is an LLC. In a sense, I have this equity. This is
| how the value is defined:
|
| Value = Percent_Of_Shares *(Current_Price_Of_Company -
| Price_of_Company_At_Time_Of_Issuance)
|
| Note that, on the day these issued to me, the value here is
| equal to zero, because the current price of company is equal
| to the price of company at time they are issued. Thus, I have
| received something which has no value, and thus have no tax
| burden. Technically I'm now a partner in the LLC.
|
| This has tax implications: when the company is making money,
| I owe tax money on that. However, they're in growth mode, and
| losing money, which means I get to carry a tax writeoff.
| Further, it's written into the company's bylaws that if they
| make money, they're obligated to give employees a
| distribution equal to the tax burden that the employee will
| incur, i.e. when there is a tax burden outside of a
| liquidation event, they are obligated to give me enough money
| to cover it. Also, if they sell the company, my shares are
| vested immediately. I don't know what happens to them
| covering the taxes if I leave; maybe I become liable for it,
| and there's a downside there.
|
| The shares are non transferrable, which is lame but
| apparently quite standard.
| roflc0ptic wrote:
| I only make money on this in the case of a liquidity event,
| or if the company decides to start paying "dividends" or
| whatever the appropriate finance word is here.
| ericbarrett wrote:
| It is pretty remarkable if it prevents dilution. Are you sure
| there's no weasel-wording in your contract that allows
| arbitrary changes in the future, has funky exercise
| restrictions, etc.? Their special tax structure makes me
| suspicious as well (if this is the US). Sadly I think VCs saw
| all the mini-millionaires being created at FAANGs in the last
| decade and have pressured many companies into watering down
| stock compensation, since it's "lost money."
| srtjstjsj wrote:
| I don't think it prevents dilution. Hard to believe investors
| would agree to a scheme where new rounds pay a % fee directly
| to employees.
| roflc0ptic wrote:
| It doesn't. It's basically still monopoly money. According
| to the org, they've had 3 or 4 rounds of financing, and
| each time they've taken on new funding they've distributed
| new shares to offset the dilution. This isn't policy
| they've committed to, just something they've opted to do.
| roflc0ptic wrote:
| Yes, I was suspicious, too. They offset my suspicions by 1.
| paying me a generous salary, and 2. giving me time to talk to
| an accountant about it. The accountant had never heard of it,
| but looked into it and it was legit. The reason that it's
| unfamiliar is because it's so danged advantageous to the
| employees.
|
| There is some room for them to dilute the shares out of
| existence. Notably I don't have to exercise them, I already
| "own" them. The vesting schedule is really more of a
| forfeiture schedule. If I leave after a year, I forfeit 3/4s
| of them. Otherwise, they're mine into perpetuity, until
| liquidation.
| [deleted]
| mizzao wrote:
| Can you share more about this? Trying to figure out how to be
| fair to future employees as a founder and considering all the
| options
| roflc0ptic wrote:
| https://www.investopedia.com/terms/p/profits-interest.asp In
| some detail.
|
| There's one thing that some of these articles claim that
| isn't quite right. Because this arrangement technically makes
| employees in a partnership, per the IRS this means they have
| to pay their own side of social security and isn't entitled
| to e.g. health insurance. It turns out the department of
| labor has issued conflicting guidance: if I am, for all
| intents and purposes, employed by a company, then I am to be
| paid as a W2 employee and am entitled to benefits. My company
| has chosen to follow the department of labor's guidance.
| PragmaticPulp wrote:
| Another big difference in modern startups that wasn't mentioned
| in the article: It now takes more employees than ever before to
| get a startup company off the ground.
|
| It's basic math: You can give more equity to early employees when
| you have fewer of them.
|
| We have more services, frameworks, and technologies available to
| quickly build companies than ever before. Ironically, it somehow
| takes more engineers than ever to ship most products. The surface
| area and expectations for a modern product have grown
| substantially. Gone are the days when a couple of people would
| throw together a quick and ugly Rails application and then start
| trying to sell it to customers.
|
| I wish we'd see more startups bucking the trend of doing
| complicated React websites with complex backends that look like
| someone was trying to use as many AWS product offerings as
| possible. Unfortunately, it's increasingly difficult to convince
| engineers to focus on the easy, simple problems. Everyone wants
| things to be as complex as possible so they can pad their resumes
| for the next job, whether or not the product calls for it.
|
| Another factor is that interest rates are incredibly low right
| now. The cost of capital is so low that startup founders will
| often take excessive amounts of investment to grow faster and pad
| their runways. When it comes time for acquisition talks, the
| founders negotiate million-dollar "retention bonuses" with the
| acquiring company if their shares are worthless due excessive
| dilution and liquidation preferences. Works out well for
| founders, while employees get nothing.
| georgeecollins wrote:
| >> It now takes more employees than ever before to get a
| startup company off the ground.
|
| But that is not true. If you look at the startups of the late
| 90's-- the time when people learned that stock options could be
| very valuable-- it took a lot of engineers and infrastructure
| to make a tech start up. As you point out more services and
| frameworks exist now.
|
| The reason why it takes more employees is the reason cited in
| the paper, companies stay private longer to make more money for
| growth investors.
|
| I agree completely with your point about the impact on
| employees. It's just that its not because the product requires
| it, it is because investors want the private growth.
| taude wrote:
| All my engineering teams are vastly smaller these days than
| earlier in my career. By a long shot. And we get way more done
| with fewer resources due to the fact that there's cloud
| computing, modern DevOps practices, etc. And then you take into
| account how many companies are using offshore resources (which
| typically are just expenses without options) at even lower
| prices.
|
| However, I'm curious if the other side of the business has
| grown with all the growth hacking marketing, sales floors that
| now seem like boiler rooms, etc...
| LiamMcCalloway wrote:
| How about adding a 'most favored nation' clause in all options
| contracts?
| barnacled wrote:
| I was lucky enough to cash out of a startup after 7 years and 3
| or 4 rounds of funding (I had left by the time I got the payout)
| as a share buyback for one of the VC investors.
|
| I was diluted from 3.2% to about 1.3% but the value of the
| company had clearly risen so _at that point_ it was unimportant.
|
| However in my opinion the company's burn rate and lack of growth
| clearly meant a later exit (likely an acqui-hire IMO) would have
| seen dilution without an equivalent growth in value, not to
| mention the ever-increasing VC non-dilution shares accelerating
| that.
|
| I got majorly screwed on tax because the startup made no efforts
| to be efficient and were very chaotic in their arrangements for
| payout so that is definitely another important factor.
|
| Overall by winning the startup share lottery I made roughly $500k
| for 5 or so years working there and that was as employee #1 so
| the maths given the pay cut probably don't work out too well
| (perhaps break even if I'd played the career game well).
|
| However of course I am hugely grateful it happened and I got to
| see a startup grow from 3 people to more than 10x that and learnt
| a lot, as well as changing my coding career direction
| substantially.
|
| I wouldn't recommend joining a startup as a non-founder other
| than for changing career or starting out. The trade-offs don't
| really make sense in most cases and you get a lot less say than
| you think you might (founders understandably want to control what
| is their baby) - never do it for the money.
|
| note: I posted a more detailed overview of what happened at
| https://news.ycombinator.com/item?id=25496667
| barnacled wrote:
| just to a add a raw account of my experience for what it's worth:
|
| I joined a startup as employee #1 and though I opted to have
| slightly more salary than shares I ended up with 3.2% of the
| shares.
|
| I was with the startup long enough to fully vest and left with
| actual shares rather than share options (a product of me joining
| when the startup was just founded and had no share option
| scheme).
|
| After I left at I believe the 3rd or 4th VC funding round an
| offer was made to buy my shares by a VC who wanted more ordinary
| stock to convert into a new series B non-dilution higher priority
| share class. All of the VC shares were of course non-dilutable.
|
| I accepted the offer (I didn't have faith the company would IPO
| and felt the most likely exit - an acquihire - would come when I
| was far more diluted at far lower value) and after a very poorly
| communicated and drawn out process ("we'll pay you next week" for
| 4 months) I finally received payment valuing the company at
| around $35M at a diluted share holding of 1.3% netting roughly
| $500k gross.
|
| Throughout I was assured that I would only have to pay a capital
| gains tax (I'm in the UK) and additionally received faulty
| independent advice that confirmed that this was the case, however
| 1 day before payment I was told that I'd have to pay roughly half
| at income tax and the other half via capital gains (the latter
| tops out at 20% in the UK so this was a huge difference and cost
| me $55k+).
|
| This was done by the startup withholding the income tax and
| paying it directly on my behalf via the UK's Pay As You Earn
| (PAYE) scheme while leaving me to pay the capital gains later.
|
| In the end I had to pay roughly 1/3 of the payout in tax netting
| me ~$350k.
|
| I was paid out 7 years after I joined the company.
|
| Overall I feel the dilution _was_ offset by the increase in value
| of the company, and the % I received was fair as to my
| contributions, but the tax arrangements were handled very poorly
| indeed and gave no room for a more efficient arrangement.
|
| Given that I felt the shares were no more than lottery ticket
| toilet paper + suspected I'd get cheated in some way even if
| there was a payout the outcome was really really good and
| unexpected, and have in fact changed my life (I can now buy a
| house after years of misspending!)
|
| But I definitely don't think the economics work out too well. I
| was paid probably half of the proper wage throughout and put up
| with a lot before vesting, having stayed there for 5 yrs that
| works out to $100k extra a year on top of the smaller salary
| (started at $50k roughly) - a FAANG or such would probably have
| paid the same by the end.
|
| However at the time I joined I worked in a very unmarketable (and
| soul destroying) role and the position helped me change my career
| direction, gave me a lot of good experience and ended up paying
| out anyway.
|
| I'd not work at a startup again (not only for salary vs. equity
| concerns) but I don't regret having worked at one.
|
| Something of a stream of consciousness but perhaps it provides
| some kind of raw data to add to the pile!
| mateus1 wrote:
| I was part of a leadership team at a startup for 4.5 years (went
| from 10 to 200 employees, series A and B). During that time I
| accumulated a significant number of stock options which could
| potentially make me a millionaire.
|
| I left the company because my salary was incredibly low relative
| other companies in the same area.
|
| I have left and I have no possibility of exercising the options.
| I technically could but that would mean ~50% of my net worth in a
| single risky investiment.
|
| So yeah, I now price stock options at zero.
| dehrmann wrote:
| If they haven't expired, you should look into the companies
| that will loan you money to exercise. ESO Fund is one, Employee
| Capital Partners is another, and I'm sure there are others.
| There's also the option of trying to sell shares on a platform
| like EquityZen.
| mateus1 wrote:
| I'd love that. I don't think there are any players in that
| market in Brazil.
| throwaway4748 wrote:
| I became a millionaire with options from a startup IPO and hardly
| feel that I won the lottery. There's thousands of employees at
| dozens of private companies that either went public this year or
| will next that will be in the same position.
|
| Certainly it helps that there's a deluge of liquidity in the
| financial markets right now that has completely changed the
| calculus from even just a year ago. I would certainly be much
| more optimistic now than any other recent point in time if you
| work at a company with good growth prospects.
| barnacled wrote:
| what was the company valued at and what % did you own after
| dilution? Roughly speaking of course.
|
| I cashed out $500k pre-tax as employee #1 at ~1.3% post-
| dilution but pre-IPO with the startup valued at $35M so had the
| company been valued at a sub-unicorny $350M or so it would have
| made me a millionaire. Just wondering how the % numbers
| compare.
| throwaway4748 wrote:
| Smaller percentage of a much larger company. It's a
| speculative market right now which helps. Most of these
| startups you're seeing in the news are going public at
| $5B-$10B plus valuations. The big ones for $50B+
| barnacled wrote:
| yeah there surely must be a fairly large floor before an
| IPO makes any sense. I'm pretty convinced the one I cashed
| out of is going to get diluted a bit more than acqui-hired
| by one of the big investors (who is in the same field as
| the startup) as the growth just doesn't look to have
| happened there.
|
| I think given the overall situation I came out of it well,
| but it does go to show that even when you do hit the
| startup share lottery as we both have the actual cash
| outcome can vary by a significant factor, though we are
| both lucky to have made cash given the 99.9% of startups
| whose shares end up worthless.
| phendrenad2 wrote:
| Has anyone here made significant (2x exercise price) amounts from
| stock options at a non-unicorn in the last 5 years?
| srtjstjsj wrote:
| Significant is $, not %. 10% of $1M beats 100% of $10k.
|
| Why would you expect options to pay big for a non-unicorn?
| Unicorn means the startup investment succeeded in its goal. No
| one gets rich when their investment fails.
| hn_throwaway_99 wrote:
| The percentage is actually more relevant to what we're
| discussing here, because it represents the gain from the
| employee's _known_ starting point when they were hired. If
| they were only offered a measly number of options on being
| hired, well they can just decide to bail - it 's the
| percentage gain that is the unknown and variable part of the
| equation.
|
| > Why would you expect options to pay big for a non-unicorn?
|
| I think the idea is that there _should_ be a good swath of
| successful startups between "failed" and "unicorn". Indeed,
| the whole name unicorn came about because they used to be
| incredibly rare. So the parent is really asking "If you were
| in a moderately successful startup, did you get anything out
| of your equity?"
| xmaaayyy wrote:
| Unicorns are startups with private valuations over $1bn,
| but I don't know anyone that wouldn't be happy with 1% of a
| $100M non-unicorn exit
| est31 wrote:
| Unicorn means the startup is as rare as a unicorn. Taking
| that as your benchmark for success is extremely unhealthy.
| jannes wrote:
| I think there's been a bit of an inflation when talking
| about unicorns. It just means any startup that is valued at
| >= $1bn
| xmaaayyy wrote:
| I think the generally accepted definition (as I understand
| it) is any startup with a private valuation over $1bn. So
| there is a lot of room for very successful companies that
| are not unicorns.
| vlovich123 wrote:
| I was part of a startup for a few days short of a year. We got
| acquired by Apple and I walked away with ~$400k after taxes (no
| 83-b election benefit). I'd say that was a significant amount
| for me for 1 year of work.
| Mauricebranagh wrote:
| Did that in the past in the UK at BT.A (and the forced split of
| cellnet) and RELEX more recently and I am in an EMI scheme at
| the moment that will pay out on the sale of my current employer
|
| Having said that there are significant protections in UK law
| for employee share schemes
| [deleted]
| pianoben wrote:
| I worked at a promising mobile-app startup whose gigantic
| ambitions didn't pan out; I figured they'd be an acquisition
| target and bought my options for like $4K. At some point the
| founders decided to cash out, but instead of selling, they
| started paying out dividends.
|
| That first check alone more than tripled my money - and came
| with a cap table, too, so I could see the $1m+ payouts to each
| founder as a nice little lesson in the disparity between
| founder and early-employee outcomes.
|
| Not that I'm complaining - this has turned into the single
| highest-performing investment I've ever made :) Career-wise it
| launched me into the big leagues. A+, would do it all again.
|
| The only other startup that paid me equity money, I got enough
| to buy a used motorcycle. Yay.
| xmodem wrote:
| Depends on your definition of unicorn. I did quite well out of
| options at a previous gig. They IPO'ed shortly before I left
| and are now trading at >50x the exercise price.
| leet_thow wrote:
| 20x at a startup recently acquired for 1B (assuming they hit
| earn-outs), right at the unicorn threshold.
| asah wrote:
| Several close friends have had their options worth $1M+ at
| Splunk, Slack, JFrog and more - I know the numbers because
| they've called me for financial advice.
| PragmaticPulp wrote:
| I have. Twice.
|
| My situation is far more common than the people making millions
| from unicorns at IPO.
|
| The majority of exits don't come from IPOs. They come from
| acquisitions of small-ish companies by big or medium size
| companies. These don't make headlines because they're not very
| noteworthy for the average person.
| GoodJokes wrote:
| ITT: rich people talking about rich people things
| yalogin wrote:
| In a way this feels like the VCs realized that colluding with the
| founders and incentivizing them with RSAs will make them agree to
| staying private longer. That way the collective pile grows.
| However someone has to lose and its the employees.
| rongenre wrote:
| The other point here is that it's taking ~10 years to go from a
| company being started to going public. So most employees are
| going to have to make the decision to either cough up thousands
| to exercise their illiquid options and pay taxes on them or just
| have them expire worthless.
|
| At this point, joining as a seed-round or series A employee seems
| like a sucker's bet if you're expecting equity to be worth
| anything.
| PragmaticPulp wrote:
| IPOs are rare. Most exits come in the form of private
| acquisitions. You don't hear about the latter group in the news
| because they're usually much smaller companies.
|
| Many IPO-track companies are growing fast and attracting
| serious investment, so they pay engineers top dollar. They want
| to maximize chances of getting to IPO so they don't benefit
| from cutting corners on a few engineers.
|
| If you have The opportunity to join an actual IPO-track company
| then go for it. The catch is that many startups will claim to
| be headed for IPO, so you have to look at actual growth and TAM
| and make your own judgments.
| kevinmchugh wrote:
| Only if you think the exit must be an IPO. Acquisitions and
| mergers can happen a lot earlier than that. Though those don't
| always pay out, of course
| tkay2617 wrote:
| I think the catch with acquisitions is that founders and
| investors have liquidation preferences.
| webwielder2 wrote:
| Seems like the changes discussed here are largely unimportant
| since most companies fail before they go public.
| rwmj wrote:
| I think there are also tax implications of leaving a start-up
| with vested stock that you may not be able to sell on the market
| for another 8 years?
| srtjstjsj wrote:
| Only in the sense that you can't harvest losses by selling.
| rwmj wrote:
| Don't you have to pay tax on the notional value of the
| shares, which leaves you in a difficult position because you
| cannot realise those gains.
| gizmodo59 wrote:
| You don't have to unless you sell I think. Similar to real
| stocks you don't pay tax on stocks. You pay tax when you
| sell them.
| nfriedly wrote:
| I think it depends on if you trigger the Alternative
| Minimum Tax. The default is that you don't pay taxes on
| ISOs at execution time, but if you trigger AMT then
| suddenly you do pay taxes, it can be a lot of taxes, and
| you may have no way to sell the stock to get the cash to
| pay the taxes.
|
| (Obvious you should talk to a tax professional rather than
| taking advice from a random stranger on the internet before
| taking any action.)
| TheCoelacanth wrote:
| Actual stock, no. Options, which are probably more common than
| actual stock with start-ups, you have to pay tax on the
| "profit" when exercising them. Often, you only have a short
| time to exercise options when you leave a company.
| mulcahey wrote:
| I think you pay taxes when you exercise if they are NSO. If
| they are ISO you pay on sale of the shares you acquired &
| they're subject to AMT.
| sanity31415 wrote:
| I'm facing a headache with some options I was granted for a
| startup back in 2013 for being an advisor. I didn't exercise the
| options at the time (hindsight is 20-20).
|
| The startup is doing well - it recently raised ~$300m at a ~$3b
| valuation, but my options expire in Dec 2023 and I'm growing
| increasingly concerned that they won't have a liquidity event
| before then.
|
| If I exercise my options before then it will be taxed as income
| which could leave me owing >$100k in taxes to the IRS - but if
| the company hasn't yet had a liquidity event then I can't sell
| the options to pay that.
|
| Seems like a ridiculous situation for early employees/advisors to
| be placed in.
| burnte wrote:
| Can't sell them back to the company or to another investor in
| the company?
| dehrmann wrote:
| > hindsight is 20-20
|
| Might be best to stop using this idiom.
| boatsie wrote:
| This is a common enough situation that there are companies that
| will loan you the money to help pay for options and deal with
| tax liability, using the shares as collateral. I haven't used
| one myself and am not a lawyer or financial advisor. One for
| instance:
|
| https://www.esofund.com/blog/exercise-loan
| solumos wrote:
| You should check out SecFi - they helped me out of a similar
| snag (non-recourse loan).
| cushychicken wrote:
| Are you still susceptible to this if they are ISOs? My
| understanding is that ISOs are only ever taxed at the time of
| sale.
|
| Sounds like you're dealing in an ISO quantity beyond the limits
| my mind can comprehend though.
| jonathankoren wrote:
| He's being hit by the AMT due to the value of the options. If
| you're hit by the AMT, you'll owe taxes on the spread between
| the strike and FMV on exercise, even though you haven't sold
| them.
| [deleted]
| redfern314 wrote:
| Not quite true - ISOs can incur AMT at time of exercise,
| which is kind of complicated and doesn't always create a tax
| burden. In the $100k range, it probably will, but they'd have
| to do the calculation to find out.
|
| https://www.esofund.com/blog/amt-tax
|
| Regardless, they'll still have to front the $ to exercise and
| be left with illiquid stock. It's not a good situation.
| s17n wrote:
| As others have said, AMT doesn't respect ISOs, which makes
| ISOs pretty useless.
| 0xEFF wrote:
| Not entirely, if you don't owe AMT in subsequent tax years
| then you get the money back as a tax credit.
|
| https://www.kiplinger.com/article/taxes/t055-c000-s001-the-
| a...
| sanity31415 wrote:
| Hmm, I'm not sure - how would I tell if they're classified as
| ISOs?
| jonathankoren wrote:
| It would be in your grant letter explaining the number of
| options and the strike price.
| oillio wrote:
| Have you verified the valuation of the common stock the company
| is reporting to the IRS?
|
| The common stock (what you probably get for your options) is
| usually valued at significantly less than the valuation from
| the latest raise.
| sanity31415 wrote:
| Interesting, I have not but will investigate.
| forkerenok wrote:
| The keyword you are looking for is 409A.
|
| When paying taxes on your equity compensation, the amount
| you owe is based on the 409A.
| [deleted]
| forkerenok wrote:
| You can get non-recourse financing to cover exercise costs and
| taxes. I.e. you can offload the risk of early exercise for a
| share of the potential upside.
|
| Source: I work at Secfi (https://secfi.com) and our equity and
| tax advisors are amazing.
| lemonspat wrote:
| Could you explain more on what this means?
| forkerenok wrote:
| Gladly!
|
| Non-recourse financing in this context means that in the
| event that shares (which are held as collateral) became
| worthless there is no personal recourse. I.e. your savings,
| house and whatnot are not on the hook. The contract is just
| dissolved.
|
| In this scenario you spend $0 of your own money on
| exercise.
|
| The "catch" is that you'll have to share the upside in case
| of a better outcome (according to pre-agreed rates). But
| the reality is that it's still a better option than just
| waiting for IPO/acquisition to exercise and sell shares at
| the same time (so called cashless exercise) [1].
|
| [1] My colleague, Vieje, twitted a great case study on this
| topic:
| https://twitter.com/viejep/status/1306364614720909312
| psanford wrote:
| One strategy is to exercise as many options as you can until
| you would hit AMT (or an amount above AMT you are ok paying).
| You can do this each year until your expiration date comes up.
| s17n wrote:
| Not sure this would apply here - I don't think that advisors
| get ISOs (but I could be wrong).
| formalsystem wrote:
| Is there any reason why stock options can't be non dilutable? If
| new investors want to come in, they need to buy existing shares,
| the number of shares can be infinitely divisible to make it easy
| to always accommodate new investors.
| caust1c wrote:
| There is no legal reason why we can't have non-dilutable
| options. The only reason why it's such common practice is
| probably vanity (investors want to know they're getting X% when
| they invest) and the complexity of planning your fundraising
| schedule at the day of founding. Probably mostly the latter.
| jariel wrote:
| If you sell more shares, there is dilution - there is no way
| around it, it's math.
|
| Each stock is a slice, more stocks, then each slice is smaller.
|
| Now - if the company is growing you get 'diluted' but those
| stocks are worth more.
|
| But in the examples above where employees are getting 'less/not
| diluted' it must be at the expense of someone else: founders or
| older investors who won't like that.
|
| Given that founders, old investors and staff all generally get
| diluted at the same rate, dilution is actually one of the more
| fair things that happens in companies at least superficially.
| Groxx wrote:
| Lets say your company is valued at $100 and all stock is
| claimed for current employees. Now you want to raise money by
| selling 50% of your company to investors.
|
| So you create $100 more and now they own 50% (at $200
| valuation). This means the investors either over-paid (2x what
| they were worth!), or you were strongly under-valuing the
| stocks that existed before.
|
| If you _dilute_ , they get 50% at $50, and the existing stocks
| are now worth 50% their value. Because you literally sold half
| the company.
|
| ---
|
| The first is pretty obviously ridiculous. Nobody would pay 2x
| the worth, that's the _point_ of deciding on a value. If they
| paid 2x, it just means you didn 't _agree_ on the value.
|
| But if they don't over-pay, it's the same as the second: prior
| to the sale, your company's value was _actually_ $200 (you were
| just claiming otherwise), and after the sale your employees
| only have $100, i.e. half the company 's value. Their stocks
| were still diluted.
| joshuamorton wrote:
| Let's imagine that there are two employees who each own half
| the company, so each has $50 of stock in the $100 company.
| You wish to raise money.
|
| You can sell 50% of each persons stake, or all of one
| person's stake, or something else. Without dilution, it would
| be a founders job to convince the other employees that giving
| up some of their shares was necessary (assuming the employee
| equity pool was the only source, but s/employees/other
| investors for the same result in general), and individual
| investors or employees could make that choice. Dilution
| allows certain investors to make that decision on behalf of
| other investors.
|
| If I wanted to invest in 1% of a company, I want to be in
| control of that choice, not have someone else modify my
| investment to be smaller (even if the $-value stays the same,
| that defeats the point of my investment!)
| Groxx wrote:
| That "convincing" happened when they agreed to become
| employees, or as part of receiving their stock options. Or
| their contract states their shares can't be diluted / what
| will be done instead. AFAICT those kinds of contracts _do_
| exist, but most people can 't successfully negotiate for
| them (outside effectively founding members / top-level
| execs).
|
| You certainly could make a company where that's the default
| contract. But your fundraising negotiations will probably
| be quite a bit harder, as a lot more parties will be at the
| table.
| tonystubblebine wrote:
| Sort of a devil's advocate question, but does the value of the
| options deal depend a lot on a person's ability to choose and
| join good startups?
|
| One example I'm thinking of is Josh Elman who seemingly got into
| the VC game just on having worked at three companies that went on
| to IPO (LinkedIn, Twitter, FB) and so that was a track record
| that could stand in place of an investment record. It doesn't
| seem that impressive to me to have known that those three
| companies were going to do well, even pre-IPO. But is that
| repeatable?
|
| Basically, if you are getting into top tier startups then a lot
| of your lottery tickets hit at least a little bit. Sure, nothing
| beats a FAANG salary for average financial gain.
|
| But even little hits do a lot to even out the lower paying years.
|
| I've been getting equity since 2005 and my experience is that
| there are a lot of winners around me. Is that just luck (to some
| extent, I'm sure). But could a person gauge a bit whether they
| are in the in-crowd of companies that seem likely to do well?
| Options for the first 50-100 employees do make a meaningful
| difference in someone's life, so you can join a company pretty
| late and have a pretty good sense of their traction.
|
| I had or have equity in Odeo which would have led to Twitter
| stock if I'd stayed longer, Calm, Medium, Beyond Meat. I turned
| away Pinterest's corp dev when they were hunting to acquire a
| mobile team (not sure how serious, but I think we would have been
| a good team for them). So, that's a lot of winners that either
| actually hit, seem like they might hit, or that I was very close
| to.
|
| I had equity in Wesabe which I think would have been Intuit's
| acquisition target if Mint (an abnormally excellently executed
| startup) hadn't gotten their first. That would have been $500k to
| me. Also had equity in Branch, acquired by FB and Neighborland.
| Those are the "losers."
|
| I keep a loose accounting of how my friends did too, which is
| also a big part of why it feels like I've been working inside of
| an in-crowd. I started and then shut down a two person company.
| That other person went to Yammer (employee 70-ish) and made a big
| chunk of money. Wesable's CEO ended up VPE at Etsy and Stripe
| pre-IPO. That Stripe equity has got to be massive. A lot of the
| Wesabe team has done a stint at Stripe. The VP of Product at Odeo
| was the VP of something as Fitbit IPOd. The Branch founders got
| the FB acquisition and also had some Beyond stock. The people
| who've left my current company have all landed in good places
| including Squad which just got acquired by Twitter. A lot of my
| former team is at Medium (which I'm close enough to to feel
| pretty confident is a winner). Our employee #1 went on to be
| employee #57 at Pinterest.
|
| Again, I'm not comparing this to FAANG. But I never wanted to
| work for those companies. Instead, I wanted to work for startups
| because that's what interested me. But I also want to be able to
| retire and own my home and so for me, Options, are a big part of
| the mix that made that possible.
| taway21 wrote:
| Apparently even the godfather of AI couldnt pick the right
| company.
|
| Element AI sold for $230-million as founders saw value mostly
| wiped out, document reveals
|
| https://www.theglobeandmail.com/business/article-element-ai-...
| PragmaticPulp wrote:
| Unfortunately, no. The game has changed so much that even early
| employees can get nothing in $100 million acquisition deals
| some times.
|
| Eero is a perfect example: https://mashable.com/article/amazon-
| eero-wifi-router-sale/
|
| The new trick is for founders to do side negotiations at
| acquisition time if the shares would be worthless due to
| dilution and liquidation preference. For example, the Eero
| executives got cash bonuses of $225K to $608K for closing the
| acquisition, with parachute payments of up to $7.1 million for
| staying on after acquisition. Meanwhile, employee stock options
| were worthless despite the $100 million exit.
| taway21 wrote:
| Another great example _JUST FROM TWO DAYS AGO!_
|
| https://www.theglobeandmail.com/business/article-element-
| ai-...
| tonystubblebine wrote:
| Interesting. But this is also what I mean about quality. This
| is a low quality company, right? Like, it's not like it was a
| $100M acquisition on the upswing. They'd dropped 2/3 of their
| value which means it was damaged goods. So I'm still with my
| original question which at core is whether employees could
| have seen this and worked somewhere else. I don't know.
| draw_down wrote:
| I would like for my company to go public. Leadership has shared a
| timeline with us (as in "it will happen in the next x years").
|
| Do I like having illiquid equity? No, but the company has
| opportunities to access some liquidity. More importantly, working
| for about five years will have provided me more than many people
| earn in a career. I want many of the things described here to
| change like anyone else does, but it would be nuts to call it a
| bad deal.
|
| I have a feeling people use this kind of junky thinking ("stock
| options are lottery tickets to be valued at $0") to justify
| starting their own thing instead of being employed. But you
| should do whatever you're going to do without needing to lie to
| yourself about how equity compensation actually works out for
| engineers.
| rexreed wrote:
| Stock options are a poor proxy for company value. Instead, a
| company should allocate an interest in any in-the-money exit
| towards a pool that is distributed to employees on a rata share
| depending on duration of employment and period of employment.
| I've been working on an interesting formula for this that even
| rewards those who have left the company.
|
| Most employees don't need or want a share of the company. They
| want a share of the profits or proceeds from an exit.
|
| For example, a company can allocate 20% of all in-the-money
| proceeds from an exit to the Employee Exit Share pool. An
| employee's share of that Exit pool will be based on their
| employee-months worked divided by the total employee-months
| worked in the company, with every one year of employee months
| worked counting an additional time for the purposes of
| calculation. This thus rewards early employees and those who have
| worked for longer durations with a larger share.
| adrr wrote:
| Ownership comes with legal protections from being screwed over
| during a liquidity event.
|
| End of the day, I want to be holding the same type of shares of
| the founders because I know that our interest are aligned.
| runawaybottle wrote:
| Are there any startups that offer revenue sharing so you don't
| have to rely on the mythical exit?
| TruthHurts44 wrote:
| Zapier.
| nowherebeen wrote:
| The only startups that will offer this will probably be
| bootstrap companies. Otherwise, VC backed companies will always
| push for stock options because it's a better deal for them. I
| hope more startups starts offering revenue sharing.
| jraby3 wrote:
| Rev share is a tricky incentive. It can incentivize people to
| waste money chasing revenue. Revenue isn't always in line with
| the success of the business.
|
| As a business owner and VC I'd be extremely reluctant to offer
| that to employees.
| londons_explore wrote:
| Most sales jobs offer some kind of revenue share. Sometimes
| revenue share is the _only_ compensation.
|
| When cosco buys apples from a farmer for $1 and resells them
| for $2, they are effectively taking a 50% revenue share.
|
| A referral bonus for bringing in a new customer is also a
| kind of revenue share for the existing customer, and plenty
| of startups do those.
|
| I think the key is to compensate based on a revenue share of
| what _you_ bring in, rather than of the total revenue.
| jraby3 wrote:
| That's true for sales jobs. I was under the impression he
| was asking about it for all key employees.
| foolmeonce wrote:
| I've only heard of this with consulting. Multiple times I have
| heard traditional shops offer a 1-5?% of e-commerce revenue
| depending on the portion of work, but it is often since they
| are skeptical of their own success.
| geoffharcourt wrote:
| Pre-IPO the venture is likely not profitable, so you'd be
| getting a share of zero. Companies that are VC-backed are going
| to be held to an expectation of a big payoff, and will be in
| general discouraged from offering incentives that uncouple
| employee incentives from an exit. If I understand this right,
| it's part of why founders have started to be allowed to sell
| some of their vested shares at funding events, it gives them
| some more financial runway as the company's timeline stretches
| out (you don't want the optics of the CEO of your $50m series C
| to be eating peanut butter and ramen, etc.)
|
| I do think profit sharing would be a good lever for a
| bootstrapped company that is already profitable and wants to
| give key employees skin in the game.
| beagle3 wrote:
| Note GP asked about _revenue_ sharing, whereas you discuss
| _profit_ sharing. That 's not the same thing.
|
| Salespeople and sales partners are often compensated with a
| sales based commission, which is a revenue sharing scheme.
| It's common and expected, and practiced everywhere there's
| deal flow.
|
| Technical people can rarely prove "ownership" of revenue, so
| they can't leverage that in negotiation and are left with
| "general" ownership through options or RSUs or whatever.
| There's nothing inherent or natural (or unnatural) about it.
| If money flows through you, you can usually demand to keep
| some of it. If it doesn't, you usually can't.
| eternalban wrote:
| > Technical people can rarely prove "ownership" of revenue
|
| Maybe we geeks should let the sales teams run Powerpoint
| presentations instead of the actual product to address that
| misunderstanding.
| johannes1234321 wrote:
| The point is: You can see which sales rep closed which
| deal and therefore can see what they brought in. (While a
| good sales rep assigned to a bad territory or losing a
| big deal last minute, after long negotiations, due to
| product quality suffers)
|
| Imma technical role that relationship isn't there as
| much. Sometimes one can implement a feature a specific
| customer (group) wants, sometimes a specific bug fix, but
| most of the time the value an individual enginees brings
| in is not separable.
| eternalban wrote:
| The point is: Sales team needs to _share_ with the team
| that is actually giving the salesperson a viable product.
| After all, we can "see what they [the developers] brought
| in".
| beagle3 wrote:
| How much did the devops guy bring? How much did the qa
| guy? The help text writer? The support person?
|
| In most profitable software companies, it is indeed
| shared with through bonuses and RSUs, but it is not a
| well defined / easy to understand revenue share or profit
| share scheme.
| indymike wrote:
| This is such a silly thing to argue about. Sales are very
| dependent on product quality, availability and dare I say
| delivering features customers need when they need them.
| TheCoelacanth wrote:
| Of course, that is not what anyone is claiming.
|
| With sales, it is very easy to tell which specific people
| are responsible for any specific deal. That's why sales
| compensation usually includes a share of revenue.
|
| With product development, unless you have a very small
| team working on the product, it's nearly impossible to
| tell which specific people were responsible for a
| specific chunk of revenue. When someone buys a product,
| it's hard to determine which specific features were
| responsible for the deal.
| Mauricebranagh wrote:
| And sales commissions are very rarely contractual and open
| to massive fiddling by the employer.
| indymike wrote:
| It might say revenue share on the title of the contract, but
| the body of the contract will be about a share of net or gross
| profit.
| saadalem wrote:
| More startup folks should read about Tomas Bata [0], he built
| about 2000 of houses for his workers.
|
| [0]: https://en.wikipedia.org/wiki/Tom%C3%A1%C5%A1_Ba%C5%A5a
| [deleted]
| polote wrote:
| In what world do we want employee to have stock options ?
|
| I mean, for me this is where the problem is, there is no reason
| to promise a lot of equity to an employee. Pay them well. Now any
| (private growing) company is well funded, you can afford market
| salaries.
| Fordec wrote:
| Very few startups are FAANG level funded. Why work for a
| startup and commit your soul to the effort for half what the
| big boys are paying? And far, far less risk of the company
| going bust in the next two years.
| polote wrote:
| This is the most common error people on HN make. This is not
| startup VS FAANG. A small percentage of people make FAANG
| salary. A startup is mostly paying as much as any other
| company
| glitchc wrote:
| In terms of total compensation, startups seem to be paying
| less than average.
| ryandrake wrote:
| > A small percentage of people make FAANG salary.
|
| Also, keep in mind that only a small percentage of FAANG
| employees have the nosebleed-high comps people frequently
| quote here. So, we are talking about a small percentage of
| a small percentage.
| Mauricebranagh wrote:
| Not if you compare like for like in say London FANG's pay
| very well even at the base salary.
| Out_of_Characte wrote:
| It lowers employee salary in a time a company is supposedly the
| least profitable (Starting up and having no products or
| customers) You're essentially loaning from your employees
| untill you become profitable and their stock options become
| something of worth. No matter how big or small your company,
| everyone has a limited budget. or at least seeks to not
| overspend on trivialities. Though the real world often doesn't
| reflect the theory due to unforeseen complexities.
|
| It also makes sense from a game theory perspective, If your
| below market rate employees do not believe in your company or
| are agnostic to the companies success then the chance that
| their stock options become worth something will be less. It
| should also attract more people who understand the value or
| direction of your company yielding better decisions and
| hopefully increase their stock option worth.
|
| Again, just theory. but its solid nonetheless
| mysterydip wrote:
| But we gave them a ping pong table and the illusion of
| flexible hours!
| Mauricebranagh wrote:
| Your seriously asking this question?
|
| Its to reward taking a riskier job and also for the sweat
| equity you put in.
| konschubert wrote:
| Stock options may motivate some people to think more about the
| interests of the company rather than their own.
| srtjstjsj wrote:
| The question was more why employees should agree to it.
| the-dude wrote:
| Stock options may motivate some people to inflate the stock
| price.
| andi999 wrote:
| I am nitpicking here, I know... They still think about their
| own interest, but the value of the company is now part of
| their own interest.
| 6gvONxR4sf7o wrote:
| It's often a bad deal for employees, but I think it's a good
| deal for the industry's competitive wages for folks to be paid
| in equity.
|
| You have companies A and B with workers getting $100k in cash
| and $50k in equity. Company A goes under and B doubles,
| becoming known as an elite company worth hiring from. Employees
| from A demand their old wage ($150k) in their new jobs, and if
| you want to hire folks away from B, you have to match their new
| wage ($200k). It ratchets its way up as enough people see net
| wage growth to drag the industry's competitive comp up.
| mensetmanusman wrote:
| The recent HN article on meritocracy comes to mind.
|
| I had never considered it this way in the past, but in the 70's,
| productivity started decoupling massively from productivity
| gains.
|
| I.e. the best people at finance (meritocracy) figured out how to
| capture all the new earnings relative to the workers (who didn't
| know this game was going on).
|
| This has snowballed into a situation where the financial
| meritocracy is competing with itself and could now never imagine
| a situation where non-finance people are being paid more in
| proportion with their value relative to baseline productivity
| gains.
|
| This article would fit that narrative as a symptom of one-
| upmanship gone amuck.
|
| How do we exit this brutal cycle? It requires a generation of new
| blood that is actually concerned about societal stability and
| recognizes the connection between instability and leaving 99% of
| folks behind as games are fought in 'the ivory cloud'.
|
| Will this be dealt with sans revolution? Who knows...
| runawaybottle wrote:
| The only chance of changing it was that our new emerging
| industries were supposed to be more equitable. Unfortunately
| not much of that happened, and the tech boss is the same as the
| finance boss, meet the new boss, same as the old one.
|
| I'm sorry gig workers, contractors, Amazon warehouse workers,
| startup workers, but there's not much to see here. We'll try to
| be better later if we get lucky enough to get a whole new
| industry again.
| simonebrunozzi wrote:
| Or, you get someone very influential (like YC) to start that
| revolution. Oh, wait: they don't have a strong incentive to do
| that.
|
| Even if my guess is that YC partners are well intentioned,
| doing something this radical would make many enemies in the VC
| ranks, and damage YC in the long run.
|
| I don't know... Perhaps a "revolution", like you're saying.
| danans wrote:
| > productivity started decoupling massively from productivity
| gains.
|
| I think you meant "wages started decoupling ...", right?
| mensetmanusman wrote:
| Yes, brain autocorrect. Can't edit now that people have
| replied though :)
| danans wrote:
| No problem. I don't usually like to engage in pedantry, but
| I think that the point you were trying to make is not
| obvious to many, so worth clarifying.
| travisoneill1 wrote:
| I don't buy this explanation. Very few employees are paid in
| any financially complex way. Wages dropping overall must have a
| different explanation, which I suspect is an increase in labor
| supply due to women entering the labor force and illegal
| immigration combined with a decrease in demand due to
| automation.
| zpeti wrote:
| It's funny how economists never talk about this (women in the
| workforce). Its adding 50% more people to the workforce. Yes,
| it's less because women might work less or part time, buts
| it's an insanely high number in terms of market effects.
|
| I wouldn't be surprised if one of the reasons you simply
| can't survive on one person per household working, as in the
| 60s and 70s, is simply that two people are willing to work
| now and spend all their free cash on mortgage payments.
|
| No one talks about this. I'd love to hear the debates. I'd
| love to be proved wrong.
| JMTQp8lwXL wrote:
| The 70's, into the 80's, more or less began the long-term
| decline of interest rates in general, but also specifically
| for the 30 year mortgage. With multiple factors influencing
| what people are willing to pay for a home, I question how
| much we can separate out the dual-income household effect.
|
| I wouldn't say it has no influence, but it's probably
| difficult to state with much precision how great the effect
| is.
| VRay wrote:
| Man, I'd like to see some more info on the whole housing
| industry in general
|
| It seems to be completely FUBAR to me. In Japan, housing
| ISN'T a glamorous investment, and I think that helps the
| house pricing situation a lot.. You can get a nice
| apartment in the fanciest part of downtown Tokyo for
| cheaper than a dangerous hole in the wall in San Jose
| vladTheInhaler wrote:
| The housing market in Japan is very different, for better
| or worse. As a consequence of the fact that houses aren't
| seen as investments, people...don't invest in their
| houses. They don't make necessary repairs, so the next
| owner would rather knock it over and rebuild than risk
| living in a rotting deathtrap [1]. From a macroscopic
| level, this is an enormous waste, because society is
| investing all these resources just to tread water,
| instead of accumulating wealth and resources over
| generations.
|
| [1] Raze, rebuild, repeat: why Japan knocks down its
| houses after 30 years:
| https://www.theguardian.com/cities/2017/nov/16/japan-
| reusabl...
| JMTQp8lwXL wrote:
| It's cultural. Americans generally have lower savings
| rate (when compared to other nations) and a home is one
| place where 'investing' and spending can overlap in a
| fairly bespoke way compared to anything else you spend
| money on.
|
| You can't live in a share of stock, though it may
| appreciate faster than a house. (You also generally
| speaking can't use leverage to purchase shares). But even
| if shares appreciate faster than homes, they don't feed
| into conspicuous consumption: and that matters to some
| segment of the population.
| robertlagrant wrote:
| > I'd love to be proved wrong.
|
| Why would you love that? It's 100% a factor. One of the key
| drivers of house price increases has been two-income
| households, with the nice double personal tax allowances,
| that allow much higher offers. Additionally in the UK I
| think it became illegal for mortgage companies to offer a
| lower multiplier on the second income, so it's a huge
| boost.
| vladTheInhaler wrote:
| Elizabeth Warren is talking about it. In fact, she
| literally wrote the book about it:
| https://en.wikipedia.org/wiki/The_Two-Income_Trap
| pm90 wrote:
| It's not funny and it has been reported on, but you seem
| unwilling to see it (wonder why). Eg
| https://equitablegrowth.org/womens-history-month-u-s-
| womens-....
| jaypeg25 wrote:
| You can't be serious.
|
| Are you insinuating it has nothing to do with executive wages
| ballooning (CEO compensation growing nearly 1,000% since the
| 1970's) and is instead because women are working?
|
| https://www.epi.org/publication/ceo-compensation-2018/
| frockington1 wrote:
| I think you are missing the scale and reaching for a
| political point where one does not need to be made. There
| are 500 CEOs in the SP500 and 164 million women in the US.
| The supply increase of 164 million women will have a far
| greater impact on the common persons salary than 500 CEOs
| getting paid more
| jayd16 wrote:
| Isn't that still like $7b[1] at the average 15m? Compare
| that to $45k[2] * for the 76k[3] women in the workforce,
| that's only ~$3.5b.
|
| Its US women vs the global S&P list, but it is
| interesting to compare, now that you mention it.
|
| [1]https://aflcio.org/paywatch
|
| [2]https://www.catalyst.org/research/womens-earnings-the-
| pay-ga....
|
| [3]https://www.catalyst.org/research/women-in-the-
| workforce-uni....
| JohnPrine wrote:
| *76m women in the workforce
| s1artibartfast wrote:
| your math is of by a factor of 1000X. Per your link,
| there are 76 _million_ women in the workforce, not 76k.
|
| That is $7 billion to CEOs vs $3.5 _Trillion_ for women.
| nullc wrote:
| If you divide the CEO compensation increase by the number
| of employees in the company you'll see that it itself is
| not particularly relevant in employee wages.
|
| For example Tim Cook earns 133M/yr which is $976 per
| employee. ... and this probably massively overstates the
| figure due to contractors.
|
| Or Sundar Pichai with $86M/yr which is $676 per employee
| (again... not counting contractors).
|
| Obviously it's more if you include more executives, but the
| number of top executive companies is basically a constant
| and at large companies it still ends up being not very
| large per employee.
|
| This isn't to say that it isn't a concern but I don't see
| how to justify the belief that the executive compensation
| at large companies is a major factor in the overall wage
| market.
| [deleted]
| TuringNYC wrote:
| >> I don't buy this explanation. Very few employees are paid
| in any financially complex way.
|
| It depends on the class of workers. I'd agree with you w/r/t
| most wage earners being paid in transparent manner. But I
| think the GP comment was referring to technology workers
| (given the context of HN.) In the case of tech workers, many
| are paid in very complex ways.
|
| If you have illiquid stock options in a private company, and
| especially if you have taken a below-market salary as many
| startup employees have, your compensation is about as complex
| as a CDO. Just like a CDO there are multiple tiers above you
| that need to be paid out before you ever get paid.
|
| Unlike a CDO, where you can actually pull up the details on
| the tiers above you (tranches), at startups as employees, you
| dont get to see the cap table, so the whole maze is invisible
| too!
|
| Worse, unlike a CDO where you can sell at any time, here you
| have to exercise and hold stock for some far-away liquidity
| event that usually doesnt happen. So you have an invisible
| maze, and then a pot of gold at the end, perhaps. Or not.
| yourapostasy wrote:
| _> ...at startups as employees, you dont get to see the cap
| table, so the whole maze is invisible too!_
|
| I've never heard it adequately explained why employees
| should accept this state of affairs. Not only is the cap
| table invisible, but the fully-diluted cap table and terms
| of dilution and many other terms and conditions are also
| hidden from non-founders/investors at most startups I've
| read about. I've heard so many stories of shares getting
| diluted right out from under employees immediately before a
| liquidity event that it has become a trope. IMHO that's not
| investing into a startup; that's buying a lottery ticket.
|
| What am I missing here about typical startup stock options
| where the same terms and conditions founders and investors
| see are not accessible to employees?
| TuringNYC wrote:
| I think I can explain it looking at some of the comments
| on the similar discussion yesterday:
| https://news.ycombinator.com/item?id=25487130
|
| It is the same as _acting_ and _sports_ -- people look
| the handful of winners, ignore the field of dropouts, and
| think they too can become a winner. They see AirBNB and
| think their startup is the next AirBNB.
|
| Also much like acting and sports, there are a constant
| stream of new entrants who have not learned the lessons.
|
| I want to be fair here -- I work at a startup and I love
| it. But I value my equity at zero and nothing more. I
| chose to work at a startup because I get to do cross-
| functional work rather than get stuck into a silo of a
| silo at a large company. I took a significant paycut from
| a large company salary and a significant upside cut from
| when I was a founder in exchange for more accelerated
| learning and exposure to all parts of the company.
| yourapostasy wrote:
| _> Also much like acting and sports, there are a constant
| stream of new entrants who have not learned the lessons._
|
| That sounds like the general software startup industry
| has built their own version of video game industry
| goggles; glamorize the startup lifestyle and culture so
| much millions of kids will compete with each other into a
| race to the bottom. There's probably some succinct German
| compound word for this dynamic and if there isn't, I hope
| some German speakers can suggest some here so I can add
| it to my lexicon.
| momokoko wrote:
| To be honest, I don't think most people that have been
| working for startups for more than fives years even think
| much about their stock options unless they are like
| engineer no 1 or 2. And honestly that is often a minimum
| 10 year commitment so maybe not even then.
|
| There is always the chance you'll get super lucky, but
| investors and founders have become experts at extracting
| the maximum possible portion of the value created. To the
| point where there isn't a whole lot left for anyone else.
| Workers included.
| meesles wrote:
| > if you have taken a below-market salary as many startup
| employees have
|
| I think this is part of the startup mythos. At the three
| startups I've worked at (~10 people), none of us had to
| sacrifice competitive salaries for stock options. The
| options were on top to incentivize staying at the company
| longer.
|
| I wonder how common it actually is for people to take
| significant paycuts in 2020 for a startup opportunity
| (founders aside)
| deeeeplearning wrote:
| >none of us had to sacrifice competitive salaries for
| stock options.
|
| Does this map to reality? Are you saying that if you were
| at Google making 250K in TC the Startups were paying you
| 250K Base salary + stock options? That seems ludicrous.
| fennecfoxen wrote:
| Maybe at super early stage startups where you get at
| least one percent of the company (if not more). At older
| startups you should see base salaries that are reasonably
| competitive with public company salaries: not everyone
| makes Google money, but you shouldn't have much trouble
| getting what you're worth elsewhere until you cross $200k
| or so.
|
| The big difference is that the publicly traded companies
| can pay RSUs worth money NOW.
| swiftcoder wrote:
| At this moment in time, $200k total comp at a Bay Area
| FAANG is roughly... an engineer 1-2 year out of
| university.
|
| Given that so many of the hot startups are in the Bay,
| I'd say only fresh college grads are looking at remotely
| similar comp between the two. Everyone else is playing
| the options lottery.
| nrmitchi wrote:
| This is definitely going to be a debate depending on what
| market you're looking at. But I don't think it's up for
| debate that if someone is leaving a FAANG position to
| join a start up, or debating between the two options,
| that they are taking a non-trivial pay-cut for the start-
| up.
| ska wrote:
| > I wonder how common it actually is for people to take
| significant paycuts in 2020 for a startup opportunity
| (founders aside)
|
| I think it's still super common in general, although
| perhaps not in the bay area.
| ditonal wrote:
| The confusing part is that salary and stock get mixed up,
| but in a public company the stocks effectively cash and
| can basically be considered salary, unlike illiquid
| equity.
|
| I don't know where you're from, but in SF amongst my
| circles, senior engineer market rate is about 300-500k
| but most startups will only pay 150-225k salary so that's
| a huge pay cut. However, the base salaries are same, but
| you can pay your rent, mortgage, or student loans with
| the public company RSUs.
|
| That's why it's bullshit when employees get told they get
| common shares while investors get preferred because
| employees take salary and therefore less risk. If you're
| walking away from 200k per year of public stock that you
| could instantly sell on the public market and buy real
| estate with, you are in fact taking a huge risk and a pay
| cut. Trying to pretend like you're not and that the
| startup is paying a "competitive salary" is a sleight of
| hand used in 2020 to fool naive engineers.
| sjg007 wrote:
| Reasons to work at a startup.
|
| 1. Level up your career / role flexibility. 2. Big
| companies suck (but [big] startups can suck too). 3.
| Burning idea you want to get done / tech is interesting.
| 4. Lottery tickets (options).
| pnutjam wrote:
| Not really a myth, more of a way to underpay people who
| aren't in the know. Another facet of the "old boys club".
| pjdemers wrote:
| >> an increase in labor supply due to women entering the
| labor force
|
| If you were born before between 1935 and 1955, this might
| have affected your career progression. Maybe. Because the
| more workers meant a bigger economy and therefore more jobs
| overall. If you were born before 1925 or after 1975, it had
| zero effect.
| lumost wrote:
| I think you overestimate how much negotiating power an
| individual worker has when deciding the price for their
| labor.
|
| Anecdotally, in the Software field there is a lot of "price
| anchoring" where a large employer decides that a software
| engineer makes ~125k, and both smaller/peer employers decide
| that a software engineer makes 125k +/- 10%.
|
| From past experience the base "going rate" in a given market
| doesn't seem to change all that much unless a large employer
| decides to change the going rate because a higher _or_ lower
| price point better suits their business - other companies
| will set their salaries to the baseline. Big Tech has
| recently been dragging wages up across the board by both
| hiring in volume, and paying more than everyone else.
|
| I'd be curious if anyone has a formal study on price
| anchoring in wage negotiations.
| dudeman13 wrote:
| I wished people had decided Software Engineers made 125k
|
| Could achieve financial independence in 2 years
| fennecfoxen wrote:
| I made $125k total by year 3 of my career. If you need
| $125k, look elsewhere (and specifically look in
| California and maybe possibly New York.)
|
| The unfortunate consequence of the taboo of salary
| discussions is young software engineers not knowing how
| much they can actually make.
| wyclif wrote:
| Look for CA and NY companies and salaries, but live in a
| low cost of living region and work remotely.
| dudeman13 wrote:
| I am not American.
| bob33212 wrote:
| I don't think they just pull 125k out of the air. I think
| that at 90k you are not going to get many great candidates.
| And at 250k you risk spending a LOT more money and still
| not being able to successfully recruit people that are much
| better than the 125k people. It is not like all your 125k
| people are going to quit when you double salaries to make
| way for all the FAANG people who are looking to switch jobs
| for the same salary.
| lumost wrote:
| I think that hints to how these pay bands come to be
| within a company though, it's not a transparent and
| liquid market with a bid/ask spread and a clearing price.
| In practice the company decides a band that they think
| gets people in the door. HR gets involved, and management
| settles for a 0-2% inflationary increase YoY rather than
| the marginal rate.
|
| If you combine this with one employer bordering on a
| monopsony for buying a particular category of labor -
| then pay won't move in proportion to productivity.
| VRay wrote:
| Coding is basically the one tradeskill where the free
| market is still working reasonably well. Apple or Google
| can turn a $500k total compensation package for an employee
| into $2M/year or more in revenue, so they'll keep snapping
| up people and dragging wages up. Facebook doesn't even
| bring people on to a specific team, they know that coders
| are so valuable that they'll hire as many as they can and
| just find things for them to do.
|
| Even at the low end, six months of tooling work from a
| $100k coder can often put a handful of $50k/year white
| collar employees permanently out of work (or make them
| twice as productive as before). If one company doesn't
| realize that, another eventually will. It's not too tough
| to pull in ~50-100k/year running a SaaS business or
| freelancing
|
| Things in the USA are really broken in the retail sector.
| Companies pay the absolute bare minimum that will keep them
| in business, and make up for a lot of the terrible morale
| issues that come along with that using Orwellian management
| systems
| rhino369 wrote:
| Globalization is a factor too. Doesn't matter if Ford workers
| are 200% more productive when Mexican workers are 30% of the
| cost at similar productivity levels.
| manuelabeledo wrote:
| > I don't buy this explanation. Very few employees are paid
| in any financially complex way.
|
| I don't think the point has anything to do with the
| complexity of the wages, but how workers are generally hired
| and paid, and how work is now structured, compared to the
| 70s, e.g. nowadays there are more contractors than ever,
| taking a good chunk of the wages as they act as
| intermediaries between customers and the workers who,
| otherwise, would have to be hired directly by the customers
| themselves.
|
| I'm curious though about why would you think that illegal
| immigration is driving wages down. Undocumented immigrants
| make barely for 3% of the total US population [1], and that
| does not account for those who cannot work (elderly,
| children, disabled, etc.) Same goes for women, as the general
| issue is that household income is in decline, in relative
| terms to the economy [2].
|
| Automation should also be making consumer products cheaper
| and more available, but prices are not going down at the same
| speed as wages need to go up.
|
| [1] https://www.brookings.edu/policy2020/votervital/how-many-
| und...
|
| [2] https://www.mckinsey.com/~/media/McKinsey/Featured%20Insi
| ght...
| pm90 wrote:
| Stagnating wages for the middle class is a well known problem
| but most economists currently believe that it's roots lie in
| the erosion of labor unions, stagnation of minimum wages and
| fiscal austerity measures. Illegal immigration specifically
| has been called out as something not making a big enough
| effect to warrant attention.
| fennecfoxen wrote:
| "Most economists" are not quite so overtly political about
| it like this. There are of course many factors;
| globalization and trade is a big one affecting both labor
| and labor union power: competition from overseas, direct or
| indirect, easily eclipses competition from immigrants. The
| thing is that trade also has massive benefits to real
| wages, and has boosted national output substantially.
| Nuanced discussions will try to examine this tradeoff.
| cgarvis wrote:
| The population has grown from 205 million in 1970 to 330
| million today. If you think 50% of the people join the
| workforce that is an increase of 65 million more people
| working.
| XorNot wrote:
| Demand went up with population. This is an absurd argument:
| demand as kept up with supply (otherwise productivity
| basically couldn't go up) but mysteriously compensation has
| not.
| 411111111111111 wrote:
| > _but mysteriously compensation has not._
|
| I think the damning thing is that it has. Just not for
| the workers. wages for high level executives for example
| not only kept up, it's gone so high that they can't even
| invest their money anymore. they're complaining about the
| lack of got investment opportunities instead, sitting on
| their billions which destroys their society even more by
| keeping the money from circulation.
| Bresenham wrote:
| > an increase in labor supply due to women entering the labor
| force
|
| In the USA, there has been a (relative) decrease in labor
| supply due to women leaving the work force. Women's
| participation in the labor force by percentage has decreased
| over the past twenty years.
| weeksie wrote:
| No. What happened was that in the 70s energy got expensive. As
| renewables and battery tech get cheaper, we'll see bigger gains
| across the board. The "evil bankers" stuff is mostly a just so
| story to explain away the slowing of real growth for the last
| 40 years.
| pdonis wrote:
| _> What happened was that in the 70s energy got expensive._
|
| Only temporarily. Energy today, adjusted for inflation, is
| actually quite a bit cheaper now than it was even before the
| early 70s oil crisis.
| dragonwriter wrote:
| > What happened was that in the 70s energy got expensive.
|
| Well, sure, but not durably so; the most dramatic examples
| being a pair of transitory geopolitical events producing
| short-term supply shocks.
| swyx wrote:
| requisite link to other potential correlations to 1970s changes
| https://wtfhappenedin1971.com/
| pdonis wrote:
| The 70s wasn't the first time this had happened. The Industrial
| Revolution itself was a small number of people extracting most
| of the new earnings from productivity gains relative to the
| workers.
| PragmaticPulp wrote:
| Blaming bankers and proposing revolution is one of those
| explanations that sounds satisfying but doesn't really match
| the evidence. In some ways, as markets have become more
| efficient and transparent it becomes harder, not easier, for
| finance people to simply squeeze money out of the systems
| through financial tricks. We're also living in a world where
| interest rates are at historical lows, making the cost of
| capital almost negligible for anyone with a good idea. The
| downside to taking this capital is that you're giving away
| upside, but that's not exactly a secret.
|
| The bigger factor is that per-worker productivity is amplified
| immensely by technology. Historically, businesses needed to
| scale their employee base nearly linearly with the number of
| customers. If you were in the business of building houses or
| growing produce, your economies of scale topped out early. If
| you want to serve more customers, you have to hire more people
| to do the work.
|
| In the technology era, the marginal cost of additional
| customers is minuscule. Netflix has to pay marginally more for
| bandwidth and licensing fees with each additional customer, but
| the number of employees necessary to support a growing customer
| base is minuscule. Even physical goods can have automated
| production as they scale up, so physical workers are less and
| less necessary as scale grows.
|
| For the jobs that remain, supply and demand still dominates the
| equation. Engineer salaries have been pushed upward because
| demand for engineering work exceeds supply. Factory worker
| salaries have been flat or gone down because demand for
| [domestic] manual labor is decreasing, meaning more people are
| willing to work for lower compensation just to take those jobs.
|
| Try as they might, the financial people can't simply break the
| laws of supply and demand. If they try to keep so much of the
| profits that their wages fall below other companies, employees
| will simply leave for higher paying jobs. If the company raises
| wages so much that they need to charge customers more, their
| customers will simply leave for lower cost competitors.
|
| This behavior is more intuitive when you put yourself in the
| shoes of the decision makers. If you called a plumbing company
| to fix your drain and they quote you a price 2X that of the
| competitor but claim that it's because they pay their plumbers
| more, are you going to gladly take it? Or would you just call
| any number of alternatives that will charge you market rate
| costs? (If you are among the few who would gladly pay more for
| the same service, ask yourself how the general population would
| behave)
| nostrademons wrote:
| The increasing share of GDP going to finance & tech makes
| sense if you posit that the economically rational thing to do
| is to destroy the economy and rebuild it. Tech is the
| industry focused on rebuilding it; finance is the industry
| focused on redirecting resources away from the old economy
| and into the new one.
|
| Most humans have an aversion to death and destruction: we get
| attached to people, institutions, ideas, employers, basically
| things that we can count on existing. Economics doesn't care
| though. If a new way of doing things is more efficient than
| the old, the market will select for the new way, regardless
| of the human suffering it causes. And since most humans are
| averse to causing suffering, they won't be willing to
| capitalize on this opportunity, which leaves large
| opportunities available to those who say "To hell with
| institutions, there's a more efficient way and I'm going to
| bring it to the masses." They (and the SWEs, SREs, UX, data
| scientists, etc. who help them) then reap large windfalls as
| they cannibalize large portions of the economy and throw the
| now-useless workers out of work.
|
| This model explains nearly everything about the past decade.
| The downside is that it suggests that "revolution" - rather
| than being an angry but illogical reaction of a few
| disgruntled workers - is actually an inevitable consequence
| of the destruction of the old society. Political systems are
| embedded in the economic realities that birthed them; change
| economic reality and the economically rational outcome is for
| those political systems to fall. The same thing happened as
| industrialization destroyed feudal empires and ushered in the
| era of nationalism.
| lisper wrote:
| > doesn't really match the evidence
|
| Here's some data:
|
| https://www.pewsocialtrends.org/2020/01/09/trends-in-
| income-...
|
| _Something_ is driving down wealth at the low end while
| driving it up at the high end. It seems unlikely in the
| extreme that this a reflection of actual value produced by
| people at the high end relative to those at the low end. Much
| more likely is that this is a reflection of some kind of
| structural problem in the system that is being perpetuated by
| the people at the high end using the political power that
| being at the high end affords them. Whether those people are
| "bankers" or are better described by some other label is kind
| of irrelevant. It's the overall dynamic that matters.
| lazulicurio wrote:
| To quote myself:
|
| > Although the economy is a complex system and it's
| dangerous to try to over-simplify, my personal opinion is
| that there are two main and intertwined causes:
|
| 1) the cost to participate in the US court system.
|
| 2) the abuse of copyright, patent, trademark, and
| contract[1] law to divorce workers from their experience
| and treat employee knowledge as company property.
|
| The time and money involved in both pursuing and defending
| court cases favors larger entities with armies of lawyers
| and large war chests. Intellectual "property" cases take
| especially vast amounts of resources because of the
| fuzziness involved. Meanwhile, treating workers as fungible
| producers of ideas that can be bought and sold both reduces
| the bargaining power of individual workers while empowering
| companies that can amass large portfolios of patents, etc.
| to use in litigation.
|
| Not sure about reforms for the court system, but patent and
| copyright reform, combined with restrictions on unfair
| employment contracts, would go a long way to improving the
| situation.
|
| [1] NDAs, NCAs, etc.
| an_opabinia wrote:
| You could just punch income inequality into Google Scholar
| or Google Books and learn at least 100 ways capital
| concentration or poverty is perpetuated, via the natural
| experiments of many rich western countries and US states.
| robertlagrant wrote:
| Don't read too much into this analogy, but if I search
| for Flat Earth I'll get a load of stuff that talks about
| how the Earth is flat, and not much else.
|
| For example, you may not get the following explanation
| much, even though it requires no conspiracies and
| explains the outcomes: income is disproportionate because
| risk and capital are more important to a business'
| success than any particular individual's labour, and so
| they are correspondingly rewarded more as well.
| HALtheWise wrote:
| I wouldn't dismiss so quickly that it's impossible for some
| people to create orders of magnitude more value than
| others, or for that distribution to change dramatically
| with time. In farming, for example, increased mechanization
| has allowed a ~100x increase in per-worker production, and
| unless literally every other occupation had the same change
| over the same time period, that should lead to dramatic
| productivity differences.
|
| The real difficulty is in deciding who "gets credit" for
| producing a given thing. Is the person driving the tractor
| really more productive, or is the tractor itself
| responsible for producing most of the value (return on
| capital)? Maybe the bank that provided the loan for the
| tractor is creating value? Without any of those components,
| the food wouldn't be grown, so there's not an obvious way
| to divide it into the sum of individual contributions.
| spamizbad wrote:
| I am reminded of Sagan's standard "Extraordinary claims
| require extraordinary evidence"
|
| Has been there been any detailed breakdown of how much
| more effective the median CEO in 2020 is over the median
| executive in 1970? I am certain they are doing things
| better, have more data, etc but what scale are we really
| looking at here?
|
| Because, just thinking out loud here, the bulk of the
| workforce in the United States is more educated and has
| more hard skills than their predecessors did in 1970s.
| Firms demanded technology skills, for which they provided
| little or no training, and their workforce was able to
| acquire the necessary skills.. and yet the "upside" was
| nothing more than possibly being able to keep their job.
| robertlagrant wrote:
| First demonstrate that it's an extraordinary claim.
|
| Effectiveness isn't the measure, exactly, it's how
| replaceable the CEO is, and the same is true of any
| employee. If everyone is more educated (and education may
| be nothing to do with what's required, incidentally),
| then people are still just as replaceable.
|
| I have no good answers, as I definitely think there are
| pros and cons to modern executive teams, but it starts
| with replaceability.
| jonathankoren wrote:
| You're in luck! This study has been done[0]...
| repeatedly. CEOs since 1978 have been found lacking.
| Think about it. CEO compensation has gone up 970% since
| then.[1]
|
| The key takeaway is that that boards set the compensation
| based on the average compensation CEOs at peer companies,
| but performance isn't equally distributed. Essentially,
| the highest performing CEOs pull up the mean, and so the
| average and below average CEO compensation goes up.
|
| [0] https://www.wsj.com/articles/ceo-pay-and-performance-
| dont-ma...
|
| [1] https://www.epi.org/publication/ceo-
| compensation-2018/
| dlp211 wrote:
| I would assert that CEOs are far more replaceable then
| they would have you believe.
| lisper wrote:
| > The real difficulty is in deciding who "gets credit"
| for producing a given thing.
|
| Exactly. The situation we currently have is that the
| people who are getting the most "credit" as you put it
| are by and large the same small group of people who make
| the rules for who gets the credit. "Bankers" is a
| convenient popular label for those people even though
| most of them don't actually work at banks.
| [deleted]
| throwaway09223 wrote:
| I think it is more accurate to say that wealth growth at
| the low end is not as rapid as wealth growth at the high
| end.
|
| Nothing is driving wealth _down_. Wealth is increasing for
| everyone, generally speaking. This observation is important
| because it recognizes that wealth is created, not
| allocated. This is not a zero-sum game.
|
| You say it seems unlikely that actual value is increasing
| at the high end but I do not think this opinion holds up to
| scrutiny. I think it is very likely that value at the high
| end has increased by multiples -- white collar jobs have
| become vastly more productive with the introduction of
| technology. Correspondingly, low value work has not. In
| fact, many of our most common low value jobs (retail,
| driving) risk going the way of the switchboard operator.
| There was no conspiracy to devalue the work of the
| switchboard operator; rather, so called "high value" tech
| jobs made this type of lower value work entirely obsolete.
|
| I think it is unsurprising that high end work is rising in
| relative value while low end work is falling. I don't see
| any basis for imagining political or economic conspiracies:
| What we see in terms of value is exactly what we ought to
| expect.
| lisper wrote:
| > Wealth is increasing for everyone, generally speaking
|
| That depends a lot on how you count. See:
|
| https://fred.stlouisfed.org/series/WFRBLB50107
|
| The average net worth of the bottom 50% over the last 30
| years is about the same as it was 30 years ago.
|
| Compare to:
|
| https://fred.stlouisfed.org/series/WFRBLT01026
|
| and note that the net worth of the top 1% has been
| increasing more or less monotonically for the last 30
| years, with only a very small dip in 2008-2012.
|
| The bottom 50% take a much bigger share of the losses and
| a much smaller share of the gains. Over the last 30 years
| the bottom 50% has barely broken even.
| pdonis wrote:
| These charts aren't showing wealth, they're showing
| money. Money is not wealth.
|
| For example, suppose you have a car that you paid $20K in
| cash for this year. That works out to about $10K 30 years
| ago (I think the Fed charts you showed are in inflation-
| adjusted dollars, though they don't say so). So as far as
| monetary vaue is concerned, you have the same net worth
| in your $20K car today as a person 30 years ago would
| have in a car that cost $10K then. (Or even a car that
| cost $20K then, if we aren't adjusting cost for
| inflation.)
|
| Having owned cars over this entire time period, however,
| I can tell you that the _wealth_ contained in that $20K
| car today is quite a bit greater than the wealth
| contained in a car that cost $10K 30 years ago. A $20K
| car today will be more reliable, get better gas mileage
| _and_ give better average performance, have numerous
| safety features that didn 't even exist 30 years ago,
| _and_ have more bells and whistles in general. So in
| terms of wealth, I 'm quite a bit more wealthy with $20K
| worth of car today than a person 30 years ago would be
| with the same inflation-adjusted monetary value of car.
|
| And cars are actually a pretty poor example as compared
| with, say, computers or phones.
| lisper wrote:
| Yes, cars and computers have gotten cheaper relative to
| their quality. So what? Health care and education have
| gotten more expensive. Inflation-adjusted money is a
| pretty good proxy for wealth. What else is there?
| pdonis wrote:
| _> Health care and education have gotten more expensive._
|
| I think this depends on where you get your health care
| and education, but I agree that in many cases quality vs.
| price is certainly not where it should be.
|
| _> Inflation-adjusted money is a pretty good proxy for
| wealth. What else is there?_
|
| Not trying to centrally plan an entire country's economy
| based on faulty proxies for something that cannot be
| reliably measured [1]. Central planning just makes it
| easier for the rich to siphon more wealth from everyone
| else while disguising it as "helping".
|
| For example, if we take your observation about quality
| vs. price for health care and education as true, and
| compare it to my observation about cars and computers,
| the general pattern is that the areas where quality vs.
| price is worst are the areas that are the most centrally
| planned, and the areas where quality vs. price is best
| are the areas that are least centrally planned.
|
| ([1] - The reason wealth cannot be reliably measured is
| that it's subjective; the value of a good or service
| depends on who has it and what use they can make of it.
| This is the only reason wealth can be increased by
| specialization and trade in the firt place.)
| smallnamespace wrote:
| You may be surprised to hear that economists are well
| aware that consumer goods have improved over time, and
| even explicitly adjust for it when calculating inflation
| [1].
|
| [1] https://www.bls.gov/cpi/quality-adjustment/questions-
| and-ans...
| pdonis wrote:
| They do this in the Consumer Price Index, yes. But that's
| not the same as doing it in all the analyses that are
| claimed to show wealth inequality. Not all sources define
| "inflation" the way the CPI does.
|
| Also, even in the CPI, they don't do "hedonic
| adjustments", which is what you are describing, for all
| goods. For example, I mentioned cars and computers; the
| only adjustments made for those items are "cost based
| adjustments". And many items don't even get those.
|
| Then there's the question of whether the methodology they
| are using for making "hedonic adjustments" where they are
| making them actually captures what it claims to capture,
| which is, to say the least, not something everyone agrees
| on.
| lock-free wrote:
| I agree it doesn't make sense to blame bankers for exploiting
| the legal system that allows them to enrich the rich at the
| expense of the poor for a commission, other than the
| revolving doors between government and industry and lobbying
| efforts to maintain our broken society the way it is.
|
| There are numerous financial products and services available
| to only the wealthy that reduce tax burden and increase
| wealth and income that are inaccessible to anyone else,
| create little value, and are predicated on the concentration
| of wealth in the hands of a few.
|
| Just a random example, if you can afford to buy a home in
| cash, you shouldn't because the mortgage terms the banks will
| offer you are too good to pass up - you'll come out ahead
| just by taking on low interest debt and accounting for the
| rise in the home's value plus the more lucrative investments
| you can make with the cash.
|
| In other words, the people who get the most help are the ones
| who need it the least. That is the travesty of contemporary
| finance.
|
| When the critique of the financial system is made its not in
| place of supply and demand for labor but the fact it creates
| very little besides disparity. The god of liquidity should
| not be worshipped so much.
| dgb23 wrote:
| > There are numerous financial products and services
| available to only the wealthy that reduce tax burden and
| increase wealth and income that are inaccessible to anyone
| else, create little value, and are predicated on the
| concentration of wealth in the hands of a few.
|
| There is also additional pressure at the low end: Being
| poor is expensive, especially in a society with low
| solidarity.
|
| Besides debt being a potential burden, there are many
| things that you don't have access to. You can't buy in
| bulk, you can't buy quality gear, a season ticket, a home,
| You simply cannot invest, even if that made sense in the
| long term for you, your community, society etc.
| JMTQp8lwXL wrote:
| Credit cards are a ~2% tax on the economy. I think they're
| squeezing quite well still, but as has been historically
| shown, the number and depth of those sorts of opportunities
| declines with time.
| jimbob45 wrote:
| I'd say they're more of a regressive tax since people at
| the middle to higher-end cash make great use of credit card
| benefits and people at the low-end often get caught up in
| the trap of high interest rates.
| dehrmann wrote:
| > productivity started decoupling massively from productivity
| gains.
|
| Productivity is a ceiling for wages. "Decoupling" implies that,
| for various reasons, there's been a surplus in the labor market
| since the 70's.
| medium_burrito wrote:
| Which there has been, basically. We effectively double the
| workforce with women entering the labor supply. H1B ramped up
| in the 90s, but that's not the same magnitude of change.
| dehrmann wrote:
| Also include automation and China industrializing, enabling
| outsourcing.
| kuharich wrote:
| Past comments: https://news.ycombinator.com/item?id=19624164
| andygcook wrote:
| > "For later employees make sure the company offers "refresh"
| option grants to longer-tenured employees. Better yet, offer
| restricted stock units (RSUs). Restricted Stock Units are a
| company's promise to give you shares of the company's stock.
| Unlike a stock option, which always has a strike (purchase) price
| higher than $0, an RSU is an option with a $0 purchase price. The
| lower the strike price, the less you have to pay to own a share
| of company stock. Like stock options, RSU's vest."
|
| Aren't RSUs taxed at the time of grant? Therefore in a refresh
| grant, the employee would get hit with a large tax bill on the
| fair market price of the equity, even with an 83(b) election.
| Most people probably don't have that kind of money to lay down up
| front on something that could still go bust. At least with
| options, you can always (unless you get fired) stay long enough
| to see the come through to IPO where options are then a sure
| thing. Am I missing something here on the quote above?
| danans wrote:
| > Aren't RSUs taxed at the time of grant? Therefore in a
| refresh grant, the employee would get hit with a large tax bill
| on the fair market price of the equity, even with an 83(b)
| election.
|
| Usually, some portion of the vested RSUs are sold to cover the
| tax liability, and the rest go into your investment account.
| The tax rate is the same as regular income.
| draw_down wrote:
| Don't think so because they don't have value at time of grant.
| They have a double trigger structure that doesn't grant the
| employee a share until liquidity event. From a legal
| perspective there is a "significant risk" of them expiring
| worthless (typical window is 7 years I believe). This makes it
| not a simple windfall for the employee.
| commandlinefan wrote:
| > Aren't RSUs taxed at the time of grant?
|
| Not the times I've had them - they were always taxed at time of
| vesting. There's always an option (or at least I was always
| offered an option) to sell back some of the stock at the time
| to cover the tax, even if you weren't exercising the remainder
| right away. That way there was no out-of-pocket cost to you at
| the time of vesting (but you did have the option to keep all
| the RSU's and pay the tax due if you wanted to).
| nfriedly wrote:
| My last employer, Tanium, offered single-trigger RSU's (vesting
| required time but no liquidity event) - they were taxed as they
| vested.
|
| We had a couple of choices to pay the taxes: the default was
| that the employer would buy back some of the stock and use that
| cash to pay the taxes. Employees would get to keep 70-some
| percent of the stock. The other option was that employees could
| write the company a check for the taxes shortly before vesting,
| and then keep all of the stock.
| jeremyis wrote:
| I think it's time of liquidity for double triggered RSUs.
| That's what big pre IPO companies give and at IPO all the
| accrued RSUs are taxed as income.
| fullshark wrote:
| As a restless employee in a big tech conglomerate, interested in
| possibly going to a startup, this blog perfectly outlines why it
| would be totally insane for me to even consider it, and why
| frankly I have not.
|
| The big tech monsters have all the talent and unless the nature
| of the game changes it will be that way for the foreseeable
| future and tons of great ideas will die on the vine.
| JumpCrisscross wrote:
| The elephant in the room are transfer restrictions. VCs demand
| their preferred stock trade in the secondary market. At the same
| time, common stock is locked down. If the common stock is
| sellable before the company exits, the risk-reward calculus for
| company equity shifts in employees' favor.
| dehrmann wrote:
| One question to ask when interviewing at a startup is when was
| the last time someone sold common shares. You can also turn it
| around and talk with someone at a platform like EquityZen and
| ask them "I'm negotiating an offer at X; what has you
| experience been with them?" Some startups make it very easy for
| people to sell shares, some don't, and some are so small
| there's no market for the shares.
| cs-szazz wrote:
| How does something like this mesh with selling common stock but
| the company having right of first refusal?
|
| Say I want to sell common stock that I own, to someone who
| meets the SEC accredited investor definition. It seems that
| right of first refusal means that the company could buy the
| stock instead, but it would have to be at the price that I set
| with the external investor. In that case, don't I as an
| employee get liquidity either way, since it's being bought at
| the agreed upon price?
| alex_h wrote:
| I learned the hard way that options agreements tend to have
| additional clauses allowing the company to unilaterally
| restrict sales. The contract might look like it has a
| straightforward process for employees to sell, with a company
| first right of refusal (with the company purchasing the stock
| instead). But there is usually additional fine print that
| basically gives the board veto power over any transfer of
| stock.
| cs-szazz wrote:
| Interesting, are you able to share more? Or if you know
| where I might be able to read more about this?
| alex_h wrote:
| I'm definitely not an expert on options contracts, but
| the examples of clauses I've seen are:
|
| (In the options exercise agreement): "All certificates
| evidencing shares purchased under this agreement shall
| bear the following legend: "The shares represented hereby
| may not be sold, assigned, ..., except in compliance with
| the terms of a written agreement between the company and
| the registered holder...""
|
| (On the share certificate): "This certificate and the
| shares represented hereby are issued and shall be held
| subject to all ... bylaws of the corporation, to all of
| which each holder ... agrees to be bound"
|
| Either of which seems to give the company the ability to
| unilaterally reject any transfer/sale of shares.
| JumpCrisscross wrote:
| > _In that case, don 't I as an employee get liquidity either
| way, since it's being bought at the agreed upon price?_
|
| Correct. The problem is a lot of companies go further. They
| restrict sales completely. In practice, insiders are allowed
| to purchase at depressed prices in tenders from time to time
| and then resell at a mark-up in the open markets.
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