4 ms·
Why do firms offer options as opposed to actual equity? The way these options are structured plus US tax law basically means a lose - lose scenario for the emp
by retube 11y ago
Why do firms offer options as opposed to actual equity?
The way these options are structured plus US tax law basically means a lose - lose scenario for the employee.
- pgwhalen 11y agoI have an extraordinarily limited understanding of these things, but I always thought it was because if you were gifted equity you had to pay taxes on it immediately, based on the current valuation, which is a major bummer.
- rpedela 11y agoThe employee has to pay for the shares and any taxes up front. In the very early stages, this is ideal because the shares are worth nothing. Eventually the shares are valued high enough that the upfront costs are prohibitive.
- brianwawok 11y agoI think some of it has to do with giving you either X stock or 2-4x Options... If your company is growing every year, and the stock is liquid, Options are great. I know a fortune 1000 company that used to give people a bunch of options at bonus time, people loved it - bought houses, etc. Then the stock turned sideways, so they switched to 50% options, 50% shares (with the actual share count being option count / 4, to approximately take into account that shares are worth a lot more than options). The next year they flipped to 100% shares. No one would get mega rich with a small pile of shares, but everyone would have some money in the bank...