8 ms·

> Not only does it not allow employees to sell their shares to secondary buyers, it also won’t allow them to use services like those offered by 137 Ventures, wh

by xiaoma 10y ago

> Not only does it not allow employees to sell their shares to secondary buyers, it also won’t allow them to use services like those offered by 137 Ventures, which makes loans to founders and early employees using their stock as collateral. (Snapchat, Dropbox, and Airbnb have similar policies.) Does keeping early employees "handcuffed" essentially as indentured servants until IPO align with YC's ethics policy?

ploxiln 10y ago
"indentured servants"? That's ridiculous - startup tech workers are paid well compared to the average person, and they face no financial penalties for leaving their jobs if they do not exercise their stock options. They do face the gnawing possibility that they could be rich, if only they could sell immediately, or keep the options for later, or or or ... if only! But they can always just find another reasonably interesting job and get on with a pretty good life. I'm as interested in big success as the next guy, but let's be reasonable - these handcuffs are a lot more like "golden handcuffs" than actual handcuffs (or indentured servitude).
- xiaoma 10y ago
  You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes. Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work, that compensation can be taken from them if they leave the company. Do you feel this behavior is ethical?
  - gogopuppygogo 10y ago
    As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair. This isn't the result of some kind of secret court deciding that it's how a company should pay employees. Adults are consenting to this arrangement. There is only so much "fair" to be had in business. It's not like there aren't 1,000 other "mini ubers" that want to own the market Travis and Co built.
    - xiaoma 10y ago
      >"As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair." That's literally the logic that was used to justify indentured servitude.
      - giaour 10y ago
        I don't think anyone believes that the issue with indentured servitude is that it was enforced by contract. As a society, we have decided that there are certain things you can't sign away (e.g., your freedom) and there are certain things you can (e.g., your right to exchange an illiquid asset for cash). The GP's point is that calling this arrangement "indentured servitude" is more than a little dramatic.
        redshirtrob 10y ago
        I read it as hyperbole for the sake of making a point. I don't think the OP meant it literally. But, debating that term seems to be getting away from the main point--that an employee could have an option on a sizable asset with no way to assert ownership of the asset, despite having fulfilled the vesting requirements set forth in the stock option agreement.
        giaour 10y ago
        I'm not sure it is getting away from the main point. The OP's original assertion was that Uber is acting unethically, and calling the arrangement "indentured servitude" was meant to highlight how Uber's actions are morally wrong. I disagree. The employees who are saddled with options they can't exercise are adults who agreed to the terms of their employment. They are free to quit Uber and work somewhere else if they want. There are a number of other ways options can become worthless while you're waiting for them to vest. The employees gambled on options and are finding out that there is yet another way to lose that bet.
        redshirtrob 10y ago
  - CamperBob2 10y ago
    You disagree in terms of diction. No, there really is a pretty massive material difference between a startup employee and an indentured servant. It takes extreme naiveté or extreme privilege to confuse these two concepts.
    - xiaoma 10y ago
      They weren't literally "handcuffed" either. Have you ever used the term "piracy" to describe unauthorized copying rather than attacking and plundering ships on the high seas?
      - zenlikethat 10y ago
        Actual indentured servants were / are treated far far worse than the average startup employee. Besides that, no one forces employees to accept equity in lieu of decent salary. Comparing startup employees to indentured servants is a horrifyingly privileged way to frame the topic.
      - giaour 10y ago
        Yes, they were literally handcuffed.
        xiaoma 10y ago
        You must have been shown a part of the Uber offices outsiders don't normally get to see.
        dllthomas 10y ago
        Or insiders, for that matter.
        giaour 10y ago
        I misread the comment I was replying to and thought "they" had an antecedent of "indentured servants."
  - giaour 10y ago
    Options are inherently risky and should be accepted as compensation with the knowledge that there is a non-zero chance that they might turn out to be worth nothing. What's described in the article is an interesting way for those options to be effectively worthless, but it's not materially different (for an option-holding employee without unlimited means) from Uber going bankrupt or having all unvested options cancelled as part of an acquisition. If an employee wants guaranteed compensation, they can negotiate for a cash-only package. If they want stock-based compensation that is not vulnerable to this particular loophole, they can go work for a publicly traded company that hands out RSUs.
    - williamscales 10y ago
      The twist here is that the options end up worthless despite the hard work of the employee that leads the company to be successful. The options are supposed to incentivise this. Something about the incentive structure is wonky---in the case of Uber going bankrupt then the options "should" be worthless. But if Uber succeeds, then the incentive should pay out.
      - quanticle 10y ago
        But options can end up (near) worthless anyway, for a number of other reasons. The company could go bankrupt. It could a new set of preferred shares that take priority over the current shares. It could get bought for a pittance. Granted, few of these probably apply to Uber, but they are all things that happen to companies in the broader space of start-ups. The reason we're focusing on the 90-day clock for exercising options (and the attendant bill) is that it's something that happens to a single employee when he or she leaves the company, as opposed to something that affects all the employees all at once. But I'm not sure that changes the aggregate analysis. It feels different, but I'm not sure that it is different. When you an employee joins a start-up, he or she is taking a risk that part of their compensation could end up worthless. The corresponding reward for that risk is the chance for that compensation to be worth beyond their wildest imaginings. If that risk/reward ratio is not to their liking... well, Google is hiring, aren't they?
  - prklmn 10y ago
    This behavior is absolutely ethical. They have done some work, not all the work as you have implied. Part of the basis of paying employees with options is so that they stick around - early employees know this when excepting this form of payment. This is the small price they are paying for getting rich later.
    - jamra 10y ago
      It's not a small price and it's not made clear in the beginning when they promise shares for service. The absurdity of allowing management to make slaves of men is no small thing.
    - dnautics 10y ago
      that's not the unethical part. The unethical part is that exercising the options is a nontrivially confusing, in part, because of the legal and tax ramifications... And the startups don't complain too much because if the employee doesn't take part in the equity sharing scheme (often because of decision paralysis resulting) it is to their benefit. The unethical part is that the startup uses the equity to lure the employee, but fails to adequately warn them about the trickiness coming down the pike when that time comes.
    - PeterisP 10y ago
      The whole point of this article is that the employees have stuck around for the agreed vesting terms, the company has been successful, and the "later" has arrived now - but they are still prevented from exercising the promised gains and will be, potentially forever (e.g. if the major owners decide to keep the company private indefinitely under current terms). That was not the initially accepted bargain. The bargain was that they take the risk of options becoming worthless or them not staying through the vesting period. Those risks didn't happen, this is the point where they would have earned the right to cash out, but now it turns out that the option isn't actually there.
- Apocryphon 10y ago
  Certainly, golden handcuffs are a much less pressing concern than actual handcuffs that the less fortunate have to deal with. But this seems to highlight that no matter how much you're earning in Silicon Valley, you're still on the lesser side of the asymmetry against the founders, VCs, and management that run this town.
- specialist 10y ago
  I appreciate this topic and am definitely in the proletariat camp. I've made other people rich multiple times, with my ideas and effort, and gotten dick in return. I definitely would have been better off with a corporate job. To my shame, I honestly don't understand the accounting behind all this. You'd think I'd learn. But each time I've been screwed a new way. Not knowing how to defend myself, I've mostly opted out. Which also doesn't seem like a good strategy.
redshirtrob 10y ago
Sam Altman has commented on this before. Among other things, he advocates for much longer (10 years) exercise periods for equity grants.[0] He also discusses the need for a change in tax treatment by the IRS. One of the fundamental issues is how options are taxed. Should you exercise an option, you will need to pay taxes on the spread (delta of strike price and current FMV, i.e. latest 409A valuation). In many cases, the spread is so small or nonexistent, that the tax bill is irrelevant. But, in a few cases it's so large that most people can't possibly raise the capital to cover the tax bill. I think the fundamental issue is the definition of FMV. When there's no public market, and employees are covenanting away any rights to sell their equity on secondary markets, is there really a fair market? I would say no. [0] http://blog.samaltman.com/employee-equity http://blog.samaltman.com/employee-equity
- xiaoma 10y ago
  Thanks. That was a great post. Hopefully, his proposed solutions gain traction.
- cplease 10y ago
  If the spread is nonexistent, why exercise at all? Why not just dump your money in an index fund?
  - beambot 10y ago
    So that you can get restricted stock in the startup you worked at for no out of pocket expense...?
    - cplease 10y ago
      How do I exercise a stock option with no out of pocket expense? Not restricted stock or restricted stock units. If I exercise an option with no spread, I am paying (at least) as much as it is presently valued.
  - bps4484 10y ago
    It may be that a company has done very well but hasn't raised more money to bump up the present market value of the stock. In this case you would want to exercise early so that the clock starts for capital gains in the event of liquidity.
throwaway45589 10y ago
Uber pays entry-level software engineers ~$110k [0], experienced engineers closer to $130k. According to Glassdoor this is in the same ballpark as Facebook, Google, Twitter, etc [1]. You are not really making the startup "worse salary but potential equity" trade by working there, when the straight-out-of-college salaries are similar to the averages across all of Google. [0] https://www.glassdoor.com/Salary/Uber-Software-Engineer-Salaries-E575263_D_KO5,22.htm?filter.experienceLevel=LESS_THEN_ONE https://www.glassdoor.com/Salary/Uber-Software-Engineer-Sala... [1] https://www.glassdoor.com/Salaries/san-francisco-software-engineer-salary-SRCH_IL.0,13_IM759_KO14,31.htm https://www.glassdoor.com/Salaries/san-francisco-software-en...
- xenadu02 10y ago
  130k for experienced engineers is very low by SF standards. That's average for senior positions in Dallas. 150k is the bare minimum for a senior dev unless you're getting a boatload of founders shares in a very early startup. Google, Apple, and Facebook pay more. A lot more just in salary, more like 180-200k before options/RSUs.
  - kevinastone 10y ago
    I work at one of those major tech companies and we've been out-bid by Uber pretty frequently. Uber pays well above market here in SF.
- rdl 10y ago
  Glassdoor numbers are about 50% of reality.
refurb 10y ago
indentured servants Wow that phrase has really lost its meaning lately.

by xiaoma 10y ago

ploxiln 10y ago

"indentured servants"? That's ridiculous - startup tech workers are paid well compared to the average person, and they face no financial penalties for leaving their jobs if they do not exercise their stock options. They do face the gnawing possibility that they could be rich, if only they could sell immediately, or keep the options for later, or or or ... if only! But they can always just find another reasonably interesting job and get on with a pretty good life. I'm as interested in big success as the next guy, but let's be reasonable - these handcuffs are a lot more like "golden handcuffs" than actual handcuffs (or indentured servitude).

xiaoma 10y ago
You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes. Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work, that compensation can be taken from them if they leave the company. Do you feel this behavior is ethical?
- gogopuppygogo 10y ago
  As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair. This isn't the result of some kind of secret court deciding that it's how a company should pay employees. Adults are consenting to this arrangement. There is only so much "fair" to be had in business. It's not like there aren't 1,000 other "mini ubers" that want to own the market Travis and Co built.
  - xiaoma 10y ago
    >"As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair." That's literally the logic that was used to justify indentured servitude.
    - giaour 10y ago
      I don't think anyone believes that the issue with indentured servitude is that it was enforced by contract. As a society, we have decided that there are certain things you can't sign away (e.g., your freedom) and there are certain things you can (e.g., your right to exchange an illiquid asset for cash). The GP's point is that calling this arrangement "indentured servitude" is more than a little dramatic.
      - redshirtrob 10y ago
        I read it as hyperbole for the sake of making a point. I don't think the OP meant it literally. But, debating that term seems to be getting away from the main point--that an employee could have an option on a sizable asset with no way to assert ownership of the asset, despite having fulfilled the vesting requirements set forth in the stock option agreement.
        giaour 10y ago
        I'm not sure it is getting away from the main point. The OP's original assertion was that Uber is acting unethically, and calling the arrangement "indentured servitude" was meant to highlight how Uber's actions are morally wrong. I disagree. The employees who are saddled with options they can't exercise are adults who agreed to the terms of their employment. They are free to quit Uber and work somewhere else if they want. There are a number of other ways options can become worthless while you're waiting for them to vest. The employees gambled on options and are finding out that there is yet another way to lose that bet.
        redshirtrob 10y ago
- CamperBob2 10y ago
  You disagree in terms of diction. No, there really is a pretty massive material difference between a startup employee and an indentured servant. It takes extreme naiveté or extreme privilege to confuse these two concepts.
  - xiaoma 10y ago
    They weren't literally "handcuffed" either. Have you ever used the term "piracy" to describe unauthorized copying rather than attacking and plundering ships on the high seas?
    - zenlikethat 10y ago
      Actual indentured servants were / are treated far far worse than the average startup employee. Besides that, no one forces employees to accept equity in lieu of decent salary. Comparing startup employees to indentured servants is a horrifyingly privileged way to frame the topic.
    - giaour 10y ago
      Yes, they were literally handcuffed.
      - xiaoma 10y ago
        You must have been shown a part of the Uber offices outsiders don't normally get to see.
        dllthomas 10y ago
        Or insiders, for that matter.
        giaour 10y ago
        I misread the comment I was replying to and thought "they" had an antecedent of "indentured servants."
- giaour 10y ago
  Options are inherently risky and should be accepted as compensation with the knowledge that there is a non-zero chance that they might turn out to be worth nothing. What's described in the article is an interesting way for those options to be effectively worthless, but it's not materially different (for an option-holding employee without unlimited means) from Uber going bankrupt or having all unvested options cancelled as part of an acquisition. If an employee wants guaranteed compensation, they can negotiate for a cash-only package. If they want stock-based compensation that is not vulnerable to this particular loophole, they can go work for a publicly traded company that hands out RSUs.
  - williamscales 10y ago
    The twist here is that the options end up worthless despite the hard work of the employee that leads the company to be successful. The options are supposed to incentivise this. Something about the incentive structure is wonky---in the case of Uber going bankrupt then the options "should" be worthless. But if Uber succeeds, then the incentive should pay out.
    - quanticle 10y ago
      But options can end up (near) worthless anyway, for a number of other reasons. The company could go bankrupt. It could a new set of preferred shares that take priority over the current shares. It could get bought for a pittance. Granted, few of these probably apply to Uber, but they are all things that happen to companies in the broader space of start-ups. The reason we're focusing on the 90-day clock for exercising options (and the attendant bill) is that it's something that happens to a single employee when he or she leaves the company, as opposed to something that affects all the employees all at once. But I'm not sure that changes the aggregate analysis. It feels different, but I'm not sure that it is different. When you an employee joins a start-up, he or she is taking a risk that part of their compensation could end up worthless. The corresponding reward for that risk is the chance for that compensation to be worth beyond their wildest imaginings. If that risk/reward ratio is not to their liking... well, Google is hiring, aren't they?
- prklmn 10y ago
  This behavior is absolutely ethical. They have done some work, not all the work as you have implied. Part of the basis of paying employees with options is so that they stick around - early employees know this when excepting this form of payment. This is the small price they are paying for getting rich later.
  - jamra 10y ago
    It's not a small price and it's not made clear in the beginning when they promise shares for service. The absurdity of allowing management to make slaves of men is no small thing.
  - dnautics 10y ago
    that's not the unethical part. The unethical part is that exercising the options is a nontrivially confusing, in part, because of the legal and tax ramifications... And the startups don't complain too much because if the employee doesn't take part in the equity sharing scheme (often because of decision paralysis resulting) it is to their benefit. The unethical part is that the startup uses the equity to lure the employee, but fails to adequately warn them about the trickiness coming down the pike when that time comes.
  - PeterisP 10y ago
    The whole point of this article is that the employees have stuck around for the agreed vesting terms, the company has been successful, and the "later" has arrived now - but they are still prevented from exercising the promised gains and will be, potentially forever (e.g. if the major owners decide to keep the company private indefinitely under current terms). That was not the initially accepted bargain. The bargain was that they take the risk of options becoming worthless or them not staying through the vesting period. Those risks didn't happen, this is the point where they would have earned the right to cash out, but now it turns out that the option isn't actually there.
Apocryphon 10y ago
Certainly, golden handcuffs are a much less pressing concern than actual handcuffs that the less fortunate have to deal with. But this seems to highlight that no matter how much you're earning in Silicon Valley, you're still on the lesser side of the asymmetry against the founders, VCs, and management that run this town.
specialist 10y ago
I appreciate this topic and am definitely in the proletariat camp. I've made other people rich multiple times, with my ideas and effort, and gotten dick in return. I definitely would have been better off with a corporate job. To my shame, I honestly don't understand the accounting behind all this. You'd think I'd learn. But each time I've been screwed a new way. Not knowing how to defend myself, I've mostly opted out. Which also doesn't seem like a good strategy.

redshirtrob 10y ago

Sam Altman has commented on this before. Among other things, he advocates for much longer (10 years) exercise periods for equity grants.[0] He also discusses the need for a change in tax treatment by the IRS. One of the fundamental issues is how options are taxed. Should you exercise an option, you will need to pay taxes on the spread (delta of strike price and current FMV, i.e. latest 409A valuation). In many cases, the spread is so small or nonexistent, that the tax bill is irrelevant. But, in a few cases it's so large that most people can't possibly raise the capital to cover the tax bill. I think the fundamental issue is the definition of FMV. When there's no public market, and employees are covenanting away any rights to sell their equity on secondary markets, is there really a fair market? I would say no. [0] http://blog.samaltman.com/employee-equity http://blog.samaltman.com/employee-equity

xiaoma 10y ago
Thanks. That was a great post. Hopefully, his proposed solutions gain traction.
cplease 10y ago
If the spread is nonexistent, why exercise at all? Why not just dump your money in an index fund?
- beambot 10y ago
  So that you can get restricted stock in the startup you worked at for no out of pocket expense...?
  - cplease 10y ago
    How do I exercise a stock option with no out of pocket expense? Not restricted stock or restricted stock units. If I exercise an option with no spread, I am paying (at least) as much as it is presently valued.
- bps4484 10y ago
  It may be that a company has done very well but hasn't raised more money to bump up the present market value of the stock. In this case you would want to exercise early so that the clock starts for capital gains in the event of liquidity.

throwaway45589 10y ago

Uber pays entry-level software engineers ~$110k [0], experienced engineers closer to $130k. According to Glassdoor this is in the same ballpark as Facebook, Google, Twitter, etc [1]. You are not really making the startup "worse salary but potential equity" trade by working there, when the straight-out-of-college salaries are similar to the averages across all of Google. [0] https://www.glassdoor.com/Salary/Uber-Software-Engineer-Salaries-E575263_D_KO5,22.htm?filter.experienceLevel=LESS_THEN_ONE https://www.glassdoor.com/Salary/Uber-Software-Engineer-Sala... [1] https://www.glassdoor.com/Salaries/san-francisco-software-engineer-salary-SRCH_IL.0,13_IM759_KO14,31.htm https://www.glassdoor.com/Salaries/san-francisco-software-en...

xenadu02 10y ago
130k for experienced engineers is very low by SF standards. That's average for senior positions in Dallas. 150k is the bare minimum for a senior dev unless you're getting a boatload of founders shares in a very early startup. Google, Apple, and Facebook pay more. A lot more just in salary, more like 180-200k before options/RSUs.
- kevinastone 10y ago
  I work at one of those major tech companies and we've been out-bid by Uber pretty frequently. Uber pays well above market here in SF.
rdl 10y ago
Glassdoor numbers are about 50% of reality.

refurb 10y ago

indentured servants Wow that phrase has really lost its meaning lately.