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Tech Companies Face Greater Scrutiny for Paying Workers with Stock
- pink_dinner 11y agoThe econony is slowing, so this shouldn't be a surprise.
- simoncion 11y agoOh. It's Wall Street "scrutiny", rather than federal, state, or local government scrutiny.
- FireBeyond 11y ago"Investors are concerned with stock option grants". reads more to me as "investors are reluctant to pay market rates for engineers, but worried about losing control through dilution - want to find an easy answer that doesn't cost them either"
- aaronbrethorst 11y agofree lunches and dinners!
- simoncion 11y agoA $30 value -yours free- if you act now! Our recruiters are standing by!
- ASinclair 11y agoHopefully they face greater scrutiny from employees as well. It's annoying to be compensated in stock. I don't want to deal with complex wash sale chains just so I can dump my shares as soon as they vest. Just give me cash and let me choose if I want to buy shares in the market like anyone else. If they must give me golden handcuffs then do so in the form of cash bonuses at set dates.
- KKKKkkkk1 11y agoWhat's the best way to eliminate the market risk you get when you're issued RSUs? Short selling? Put options?
- erehweb 11y agoCompanies may explicitly bar these.
- hkmurakami 11y agoPuts work well if you can acquire the options at a reasonable price (they're often quite expensive though). Mark Cuban did this when Broadcast.com was acquired by Yahoo! However, the contracts may be illiquid / not available for smaller market cap companies.
- KMag 11y agoI could be wrong, but I think most companies prohibit their employees from short exposure (shorting equity, being long equity puts, or short equity calls) to the company, even if they're still net long the company.
- runamok 11y agoI may not be understanding your question but I generally have advised my wife to sell most of them as they vest. Having all of your compensation in one company (salary as well as thousands of dollars in stock) is too undiversified in my opinion. They are also much less liquid then you'd think as there are often long blackout periods with short windows to sell so it's quite tough to time the market.
- WalterBright 11y agoI know employees who negotiated for higher salaries in lieu of stock options. Years later, they were awfully unhappy when their peers made bank off of the stock.
- p4wnc6 11y agoSo few people make bank from tech stock that everyone should literally ignore this anecdote and operate in life as if it is not true. This is like saying you're not going to buy that $2.00 lottery ticket, then being mad when someone else wins the lottery. Do not buy the $2.00 lottery ticket.
- wonnage 11y ago> While the median number of restricted shares granted at Standard & Poor’s 1500 companies to executives and employees in 2014 equaled 450,198 shares, tech companies granted a median 798,000 shares of restricted stock to workers, according to data from Equilar, a research firm that provides data on executives, boards and compensation. It doesn't appear that the author understands how this works...
- bigtones 11y agoI agree, the number of shares is of less consequence than the total value as the price of each companies shares varies wildly. If they all got the same number of shares, I would choose to work at Google with a $790 share price rather than LinkedIn with a $40 share price.
- nvader 11y agoI think it's a case of the outstanding share numbers being much easier to get than how much these companies are actually worth right now. I can see an overworked journalist who out of expediency decides to include these meaningless numbers, because including ANY numbers gives the verisimilitude of hard science. Even if they've done the equivalent of adding a days temperature in F to its wind speed in km/h to its percentage chance of rainfall.
- umeshunni 11y agoDamn those companies, trying to pay their workers with stock instead of giving it to Wall Street.
- jcdavis 11y agoBut they don't "give it" to Wall Street, people actually pay for it, which is the big difference. All the use of the non-GAAP numbers is an attempt to skirt around this fact
- walshemj 11y agoAnd compared to the UK tax treatment of stock options for employees is brutal
- toomuchtodo 11y agoWhat if the way the UK treats stock options for tax purposes is the right way and the US is extremely lenient?
- thaumasiotes 11y agoI have no knowledge of what the differences might be. But I read the sentence you're responding to as the opposite of how you seem to. > compared to the UK[,] tax treatment of stock options for employees is brutal To me that sounds like the US is strict and England is lenient. Your way would need wording like "compared to the UK tax treatment of stock options for employees[, which] is brutal".
- walshemj 11y agoWell for one you cant get a massive tax bill for options that are worth nothing. The first $15k of capital gains is tax free and approved share schemas have even better allowances. I know some one working in a 100 year old ftse 100 company that grossed nearly $200k from a share option scheme - and that is effectively tax free. From next year you can put away $28k in a tax free account that is immune from income tax - this years allowance is $20k. Thats before you get into EIS and VCT Shares
- chollida1 11y agoThere are alot "oh its wallstreet" comments here, but I'm not sure its warranted in this case. Investors in this case are pension funds, hedge funds and in some cases ETF managers like BlackRock and Vanguard who are speaking up. I can see how some tech employee's who get part of their compensation in the form of restricted shares or stock options may look at this as wall street attacking them, but in all honesty, run of hte mill employee stock rewards pale in comparison to C level executive compensation. This is targeted squarely at the Marissa Mayer's of the world not the average Google employee. This is a long running controversy. Below is a Harvard business review article from 2003 about the issue. I remember that at one point it was a contentious issue as to whether or not companies had to account for stock option/stock grants in their GAAP counting. https://hbr.org/2003/03/for-the-last-time-stock-options-are-an-expense https://hbr.org/2003/03/for-the-last-time-stock-options-are-...
- simoncion 11y ago> This is targeted squarely at the Marissa Mayer's of the world not the average Google employee. You miss the point of my "Oh, it's Wall Street scrutiny..." comment. If it were government scrutiny, we might see changes in how the current value of the stock of a company that's not publicly traded is reported to its employees. At the "startup" I used to work for, I got stonewalled every time I asked for the valuation (whether current or near-to-medium-term expected) of the stock options I had been offered. Friends at other startups report similar stories. Requiring companies to keep up-to-date information about current and expected future stock valuation, shares issued, & etc would be nice. Requiring companies to disclose that information on demand to current or potential future employees (along with where in the queue the shares that one is either being offered or are currently holding are) would be another nice step. I get that keeping this information up to date might be a hassle. On the other hand, just how the fuck do you raise money without this information? :)
- cloudjacker 11y ago> At the "startup" I used to work for, I got stonewalled every time I asked for the valuation (whether current or near-to-medium-term expected) of the stock options I had been offered. Friends at other startups report similar stories. OMG same here! Shit like this had me considering if any engineers would bite in joining a union-like entity. But life is all around still too decent for that.
- ChuckMcM 11y agoI think this article boils down to two statements, "Mr. Mahaney said stock-based compensation could “distort the quality” of a company’s earnings and “make them look stronger than they are.” -- this has been a refrain from analysts for years, and the whole reason companies now report options as an expense. The argument goes, if it doesn't "cost" anything to give someone an option, then for a salary budget of X and a revenue of Y you mis-report the cost of revenue so the revenue "looks better" than it really is. In my experience, anyone who has worked at a job where part of their compensation was stock options has never considered options "pay" like the dollars that show up in your paycheck twice a week. They are always lottery tickets, and given the trading restrictions at public companies, usually a pain to exercise or cash out. Further distancing them in one's mind from the notion of compensation. The second statement is this one; "Ms. Hindlian says that while it can be reasonable for companies to pay workers a lot in stock, the practice can become scary when the stock starts to fall. “Particularly with software companies, you run the risk of losing your leading salespeople, engineers and developers when the stock falls, because employees feel like they’re getting a pay cut,” -- For the folks that I know, they don't consider it pay so if the options which they haven't exercised are underwater they don't consider them a "pay cut." It is closer to the truth to say that options with value (so called "in the money") do have a retention power on employees but only if they continue to be worth something. And sometimes even that isn't enough. But it is true to say that employees with options don't behave like little autonomous drone actors moving in collective self interest, and that makes it a lot harder to evaluate the enterprise value of a company. That difficulty arises from the understanding that it is the people that make the company what it is, and not being able to predict if those people will stay or leave adds uncertainty. The desire for mathematical evaluation is strong in the analyst community and they continue to argue against anything that seems to affect that.
- d4rkph1b3r 11y agoThe vast majority of people making money from stock compensation are at big companies that give generous RSU grants, so I'm not really sure how much of what you say is applicable. I think people absolutely consider RSUs as a factor in compensation, albeit a slightly more complicated, less predictable amount of pay. But given that it can be over 100% of your total cash compensation... it seems crazy to say people don't 'count' it.
- brandmeyer 11y agoIn the case of the big publicly traded companies, I have been assuming that this was simply a way to securitize the large overseas cash holdings in these companies. If the stock market values the overseas cash holdings as though they were local reserves, then the companies can effectively pay some of their biggest expenses (local employees' salary) with the investor's collective belief in the overseas money. A strictly rational market might price the book value of that cash at its face value, less the tax burden of moving it to where it would be used. But I don't think they are being rational overall: The potential future tax liability is not counted as a liability, and the company's management is also being given a multiplier as a reward for keeping all that cash (ex, trusting Alphabet/Facebook/Apple as investment firms of sorts, expecting returns greater than the investor's next best alternative). That's really weird to me, since I would expect that to count as a discount against the company for holding onto it as opposed to paying some of it back to the investors through dividends. The net effect is that means that it costs the company somewhat less to pay its people in stock than in cash.
- JumpCrisscross 11y agoIt's better to withhold remitting profits to the United States if they are used to pay for expenses which would have otherwise used after-tax dollars from the U.S. This also incentivises the offshoring of production, since a dollar overseas is now "cheaper," on a tax-adjusted basis, than a dollar domestically.
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- hkmurakami 11y agoI wonder what they'd say if said tech companies opted to increase salaries in lieu of stock based compensation. After all, they complain at Costco for compensating their workers too well and giving them benefits that are too good. Then you look at Wall Street and realize that the companies have some of the highest worker compensation expense ratios around (though I think this is a model to emulate for tech companies rather than shun. Say what you will about WS, but despite their outsized pay for directors at the top, they do compensate the average worker better than other industries)
- cloudjacker 11y agoWall Street is wrong about this. Tech employees are still undervalued. Feel free to bid the share price downwards. That would be a good thing. Regarding the conflict of interest for management to do things that get the share price up... what? How hard are we going to manufacture controversy here? If there is a real optimization then reveal it.
- carc 11y agoYou can't have it both ways people - when a company strikes it rich people complain that the regular employees didn't get a big enough piece o the pie. When companies do poorly, people complain that the employees totally got screwed because their equity is worth nothing now. You either can get paid in pure salary and have a lower ceiling (because you're paying for less risk) and then be left out when the company does well. Or you can get some stock with a higher ceiling/lower floor and be screwed if the company goes down the drain. Either way you're not forced to take equity... developers are in demand. This is before even considering about trying to align interests of the employee with the company..
- majormajor 11y agoThat's not an example of trying to have it both ways. There's no law that says you can't have both a solid base salary and a good equity grant, so you increase the upside but get screwed less on the downside. I don't see people on HN often arguing that companies shouldn't be allowed to offer equity, more that people shouldn't blindly accept equity grants they don't understand - that are smaller and more limited in upside than they think - in exchange for greatly below-market salaries.
- serge2k 11y agoPeople complain because the way things work now you take less than market value and when the company has a successful exit years later you end up with... maybe enough to make up for the lesser salary you took. So why not just go work for an established company and make your money without any of the risk.
- sk5t 11y agoPerhaps one can't have their cake and eat it too, but it's not uncommon for companies to argue for a much, much higher value on the equity parceled out to employees than that a VC working with better information would.
- runamok 11y agoOr you can take less salary, buy your shares when you leave because strike price is 1/3rd of fair market value and they are going to have an IPO 'any minute now' Then you can wait 5 years until they are bought by Time, Inc. Then you can get a polite letter explaining that you get nothing because only the senior stock shares were in the money. I'm glad there will be more scrutiny. Currently seems like 'heads I win, tails you lose'.