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Palantir Buyback Plan Shows Need for New Silicon Valley Pay System

131 points by mathattack 10y ago

jasonthevillain 10y ago
> It also makes them agree to a nondisclosure arrangement that forbids them from even talking about the repurchase and waive any claims they might have against the company. And the offer extends to some but not all former employees. That smells funny and oddly specific.
- codys 10y ago
  Indeed. I'd be curious which employees (if any) were included, and why.
curiouscat321 10y ago
Does anybody think that this puts them closer to an IPO?
vonklaus 10y ago
I can't find the source so this is from memory; but Karp or Theil said they wouldn't ever go public and essentially can't because they are essentially a DoD contractor. While other companies notably do similar things and other contractors are public, Palantir provides a unique platform to some extent and their customer base, much of their technology and operations are secret. It is known they will not likely go public as it would be detrimental to their business and in-Q-tel (cia vc arm) is a major shareholder. While Silicon Valley does need to rethink some of the ways they compensate employees; especially at late stage private ones, I would not consider Palantir indiicative of a typical SV unicorn
- bane 10y ago
  All is not friendly in the shire, remember this post from a few years ago? https://www.quora.com/When-will-Palantir-go-public https://www.quora.com/When-will-Palantir-go-public
  - vonklaus 10y ago
    In his response on quora he said he: * left palantir in 09 * is a major shareholder * left after he "had successfully replaced myself in both parts of the company we'd created and had fully vested". So I am not going to speculate whether he was pushed out, but it sounds like he has much less latitude for steering the company. Especially when you consider the power of the other founders and the initial VC capital that was put in. So this (claims of palantir going public) are what I would expect a major shareholder without control of the company to say. It is effectively the only way to put pressure on them. Even if this is wildly incorrect, and it quite possibly is, that comment was made several years after he had little more than an advisory role at palantir. https://www.quora.com/Why-did-Joe-Lonsdale-leave-Palantir https://www.quora.com/Why-did-Joe-Lonsdale-leave-Palantir
- CPLX 10y ago
  After seeing that name for probably half a dozen years, today for the first time I realized it's probably intended to be a cute mashup of the words "incubate" and "intel" Go figure.
- spacecowboy_lon 10y ago
  BAE,BT and qinetiq are quoted and do work for the MOD and DOD - if its such sensitive work then they would be crown servants (or what ever the equivalent is for the USA)
codys 10y ago
Palantir's official reason of "improving employee moral" doesn't seem to really mesh with the conditions they are imposing on the buy-back: > [...] employees who sell their shares agree agree that they will not compete with Palantir for 12 months or solicit any Palantir employees during that time [...] [and] agree to a nondisclosure arrangement that forbids them from even talking about the repurchase and waive any claims they might have against the company. The nyt put forwards a reasonable idea that this is a mechanism to increase their perceived value, and I'm inclined to agree. EDIT: the buzzfeed article [1] paints an even worse picture: > If they [employees] get any inquiries about Palantir from reporters, the contract says, they must immediately notify Palantir and then email the company a copy of the inquiry within three business days. [1]: https://www.buzzfeed.com/williamalden/palantir-seeks-to-muzzle-former-employees https://www.buzzfeed.com/williamalden/palantir-seeks-to-muzz...
- argonaut 10y ago
  Given that the buyback price is above market price, I don't see a problem with this. Palantir is compensating you for signing a noncompete/NDA. If you don't want to sign those things, you are free to sell on the private markets for less than what Palantir offers you.
  - cbsmith 10y ago
    > you are free to sell on the private markets for less than what Palantir offers you Perhaps you are more aware of the terms on those shares than the rest of us, but generally you aren't quite "free" to sell the shares on the private market.
    - argonaut 10y ago
      Read the article more carefully: "Palantir did not impose restrictions on employees or stockholders selling shares in the private market."
      - cbsmith 10y ago
birken 10y ago
Boy this article is a very friendly interpretation of Scott Kupor's blog post. From NYTimes: > He [Scott Kupor] also suggests a longer period for employees to exercise options after they leave, up to 10 years. That figure is endorsed by Y Combinator in an argument that any lesser period is unfair to employees. Makes it seem like Scott Kupor is on the leading edge of caring about employees, in agreement with YC (which has actually been employee friendly in words and actions in regard to stock options). However, read Scott's actual blog post and he refers to the 10 year exercise idea incredulously: > The 10-year “solution” thus takes money/option value out of the pockets of the current (and growing) employee base to line the pockets of former employees who are no longer contributing to the business. > Talk about disenfranchising your remaining employees and not being able to attract new ones. Good reminder to always read your primary sources.
- sverige 10y ago
  Indeed it is. I particularly like the 'no longer contributing to the business' part, as if the work done by the original employees isn't what the current business was built on, at a discounted rate if their stock options are worthless. And as if the stock options were the only reason they're having trouble attracting quality talent. Stock options seem attractive as a form of compensation, since the hope is that you're working for a unicorn and one day you'll be fabulously rich, but the cash equivalent is better more often than not. It's just a form of risk transfer from those who have plenty to those who hope to have plenty by dint of talent and hard work. Having been burnt, I won't do it again.
  - jegutman 10y ago
    I actually disagree with the 10yr time frame (although will admit it has its merits), but also agree with some of your logic. I just think that the 10yr "fix" solves some problems and creates others. I think this issue is that you should: A) not rob former employees of accrued stock value B) probably try to somewhat reduce incentives to leave if the company is going to continue to do well There are a few problems I see here: 1) stock option grants are completely arbitrary and sometimes end up very wrong 2) it's hard to fix that in the future because you'll end up at a higher strike price 3) end up being expensive and tax inefficient to exercise The closest I've seen to people who seem to get this and have sensible solutions are Andrew Mason at Detour (progressive equity) and Dustin Moskovitz at Asana (larger grants, but back loaded into years 4-6). I have great respect for Adam D'Angelo at Quora for suggesting a solution to the problem, have known him in school he's certainly smarter than me on almost every axis of intelligence, but I think there are other potentially creative solutions that might be better (although I don't know tax compliance). For example I think you could keep the status quo, but offer the option for employees to exchange their options for shares (white meat) at the time they can exercise. Example you have options for 100 shares at a strike price of $50, at the time you leave the shares are worth $100, instead of having to come up with $5000, you just get $50 shares free and clear. I think there's still a tax hit issue, but at least it's not doubled with paying for the shares.
BWStearns 10y ago
Wouldnt it be nice to have coworkers (ish, they both have positions at Berkeley) who can write willfully ignorant reinterpretations of your terrible ideas in the Times? Edit: I don't know for a fact that they are coworkers in a meaningful sense, of course a university is a large place, but I would expect a professor of law to have better reading comprehension than was on display here.
bane 10y ago
This sounds like a company in big trouble and trying desperately to stem attrition and improve tanking morale. According to crunchbase they're basically owned by a private equity firm now (which is rarely a fun place to be) and are raising something like a billion dollars a year -- which basically appears to be around what their operating costs are (employee count of that year * $250k/yr). They're either not bringing in any real revenue, or growing at the rate of revenue. Multiple raises per year (of weirdly different values) indicate frequent requests for more money. Are they growing or are they dying? Either way they aren't doing it through revenue, and they're not going public so the financials stay very hidden.
- pmiller2 10y ago
  Anybody who thinks this offer is meant to benefit employees isn't looking much beyond the surface. The fact that it includes a release of claims, a noncompete clause, and an NDA is a solid clue that this move is intended to benefit Palantir and not employees. Edit: forgot noncompete clause.
  - mifreewil 10y ago
    That's all standard stuff. If I was at a company for 11 years, I'd sure as hell want to cash out. Whether their offer is a good price or not, who knows.
    - soup10 10y ago
      You can only cash out 12.5%. 12 month non-compete for a small cash out is a pretty double edged deal.
      - daemin 10y ago
        But if you are still working there and do not plan to move then being able to liquidate up to $500,000 worth of shares seems like a very good offer.
        10y ago
curiousDog 10y ago
They should still get props for the rate at which they were able to recruit from Stanf/MIT/Princeton etc.
- Zigurd 10y ago
  Big presence at CMU career events, too.
- honkhonkpants 10y ago
  Why should they "get props" for duping graduates into wasting time joining their flailing business? That sounds like a trick, not a benefit.
  - curiousDog 10y ago
    Well yeah, you should be incredibly smart to trick the smartest graduates in the country to dedicate their lives to your so called "mission" :P. You should read some of the answers from their Director of Engineering, so incredibly cheesy.
  - stale2002 10y ago
    Yeah, CMU grad here. My impression of Palantir is that they hire the top 1% of developers and pay them what a 50 percentile developer would make. If you ever get a palantir job offer, you'd be better off just forwarding it to Uber, or Google or FB, and waiting for them to give you a 50% increased counteroffer on the spot.
    - freditup 10y ago
      Curious what your estimate of a 50th and a 99th percentile developer salary is for a new grad? And do you mean a 50th percentile CMU grad, or a 50th percentile CMU grad developer, or just overall?
      - stale2002 10y ago
        Perhaps I exaggerate with the 99 percentile number, but the people I know who work at a top(high paying) company like Uber or Jane Street will get something like 150k easy (and maybe a signing bonus), and Palantir is more middle of the road with 100k base salary or less, and stock options of dubious value.
swingbridge 10y ago
This sounds like a move made out of desperation, not benevolence. Word on the street is that all is not well at Palantir.
fossuser 10y ago
Comments on this thread are not very interesting and generally off topic. This article points out an issue in SV which is that it's hard for employees to get value out of options held in companies that do not go public. One reason for this not mentioned in the article is that in the US the tax burden is extreme - partially because when it was implemented it expected companies to go public. If you hold options in a private company you get taxed on the exercise of those options based on the fair market spread which is the difference in price between your original strike price (the price of the options when they were granted to you) and the current fair market valuation. This is taxed as income. This is problematic since once exercised you're holding shares of an illiquid asset (since the company is not public) and they're difficult to sell. This means even if you save up enough money to exercise your options you'll get hit with a potentially enormous tax bill due that year that you can't easily sell your newly exercised options to pay for. Additionally when you sell the actual shares after you've exercised them you get taxed again on the sale. The one exception to this is if your options are ISOs (incentive stock options) then the delta between the strike price and the fair market value isn't taxed immediately, but it does count towards AMT (Alternative Minimum Tax) and it's fairly easy to hit the AMT while exercising options (meaning you could only exercise a tiny amount per year tax free). All of these things make it extremely difficult to realize any value in a private company without enormous amounts of upfront cash and also losing roughly half to taxes. It also makes it extremely difficult to exercise options outside of a liquidity event. This can also make it hard to leave a company since the agreements are often 90 days to exercise after leaving or you lose your options (there's also usually a ten year expiration date). If companies in SV intend to stay private and don't want their employees to view the options as impossible to liquidate we'll probably see an uptick in liquidity events like this one. The companies that value their employees will probably figure out a way to make this work.
- honkhonkpants 10y ago
  If you exercise shares in a dark market why don't you just mark them at zero? If they aren't trading you can just make up the price and that goes for any good not just shares of companies.
  - 10y ago
solidsnack9000 10y ago
> Mr. Kupor notes that extending the exercise time for former employees makes their options more valuable at the expense of employees and investors. (It does so because former employees have a longer time to exercise their options and dilute the other shareholders.) This is simply a falsehood. Exercises of options of do not dilute shareholders -- new issuances do. Former employees do not issue new shares.
- argonaut 10y ago
  It's not an outright falsehood. He's referring to the (correct, but also insidious) fact that compared to a 90-day exercise window, more people will end up exercising under a more extended window - and this will dilute. In other words, extended windows reduce the number of options returned to the pool, and are thus slightly dilutive.
  - mavelikara 10y ago
    So the dilution does not come from the exercise period; it comes from rank and file employees being unable to raise the required capital to exercise. So imagine if Kupor had said "We should not be paying employees any salaries; that puts cash in their pockets which enables them to exercise their options when they vest which leads to dilution for every investor" - that would have been an obviously ridiculous position. So is the statement OP is commenting on. On a side note, you have been defending Kupor in the other thread too with such nitpicks. Why?
ChuckMcM 10y ago
I could easily see the situation evolving that "unicorns" would either have to provide liquidity for options or pay over market rates. An engineer at FB or Google that getting paid in Restricted Stock units in addition to their salary sees it as "extra pay" and an employee who sees a company that will never let them sell options as not a smart place to work. It does open up some creative financing though. Imagine a "common only" startup, one where every share bought by investors or earned as an option had the same rights and liquidation preference. Or my favorite[1] starting a company with a fixed 5 billion shares all at a par value of $1 each. Then only pay your employee in shares, only get investments by selling shares to investors. [1] I call it a favorite since we joked at a party once that if you did this, and convinced a friend to buy a hundred shares for $100 you could call yourself a self made billionaire! And be completely truthful.
stromatew 10y ago
This puts them closer for an IPO for sure, buying stock today!
francoisLabonte 10y ago
What nobody talks about is the very good reason why employers give only 90 days after leaving a company to exercise options is that there is also a tax liability to the company for an employee exercising an option. Usually employer has to pay employment tax, now if you have a lot of options still unexercised from former employees and your stock has appreciated a lot the company can be on the hook for a lot of taxes. The company prefers only being on the hook for current employees. The true solution is to give stock options that can be exercised early as long as the value of the stock is very low such that an employee's hiring bonus after tax could cover the cost. There is no tax owed by the employee since he purchased shares with no gain and then you vest outright stock. Once the stock value goes up it would be best to grant RSUs of convertible notes that convert into stock.
- harryh 10y ago
  I'm pretty sure you are wrong about having to pay taxes if their are ex-employees with unexercised options. Citation?
kriro 10y ago
How does the non compete and soliciting work for ex-employees. Is it 12 month after they left (likely void/expired for some already) or 12 month after signing in which case some ex-employees probably can't even sign this. Either way I'm very skeptical of anything involving NDAs or non competes. I can understand a non poaching clause (but am also opposed to that on ideological grounds). If I could afford it I wouldn't sign anything that has NDAs or non disclosure. I also doubt that many of the ex-employees need liquidity as they are likely to hold well paying jobs. I suppose some could need it but those are probably exactly the people least likely to compete with Palantir.
abalone 10y ago
This is called a PLP (Private Liquidity Plan). The comments here are kind of vaguely negative but it's actually not a bad deal for employees. The main problem is that most pre-IPO companies can't afford it. It uses up capital that would otherwise go into operations.[1] Where it may make sense is in so-called "private IPOs", i.e. those 9 or 10 digit dollar rounds. There's enough money there to hand out. In olden days, companies would have been public by then and employees would have had liquidity. Planatir raised $880M last year so, yeah, they can afford it.[2] [1] http://venturebeat.com/2012/09/30/need-to-cash-out-a-bit-pre-ipo-consider-a-private-liquidity-program/ http://venturebeat.com/2012/09/30/need-to-cash-out-a-bit-pre... [2] https://techcrunch.com/2015/12/23/palantir-has-raised-880-million-at-a-20-billion-valuation/ https://techcrunch.com/2015/12/23/palantir-has-raised-880-mi...
nefitty 10y ago
Peter Thiel is a cofounder of Palantir. He is also on the board of directors of Facebook.
coldcode 10y ago
Exercising options in a non-public company should not be taxed or valued in any way until the stock can be sold in a public market or to a purchasing entity. Of course what are the odds Congress would ever do that? Nil.
- Mtinie 10y ago
  Can't this be mitigated to a large degree by setting the value per share to an tiny fraction of a dollar? Sure, you'll have a tax to pay when the shares are granted, but it should be reasonable. I could get behind the scheme you commented with, but I'm unsure of generally why we have the system we currently do, so I would want to understand the rationale for the status quo.
  - hx87 10y ago
    It probably has something to do with preventing creative ways of liquidating illiquid assets, such as borrowing against the assets and promptly defaulting.
  - x0x0 10y ago
    In my understanding, there's huge tax penalties, both to employer and employee, for giving employees in the money options. Thus options have to be granted with a strike that is fmv or something approximating it. Excessively sandbagging the valuation would, I think, be consider doing the above. Further, you don't think businesses are averse to golden handcuffs, do you?
- mavelikara 10y ago
  From https://lofgren.house.gov/news/documentsingle.aspx?DocumentID=365511 https://lofgren.house.gov/news/documentsingle.aspx?DocumentI...: H.R. 4351 also includes an Incentive Stock Option (ISO) provision that corrects a severe inequity in the AMT tax system and finally resolves the ongoing AMT Incentive Stock Option crisis. This essential provision provides relief for hard working Americans who are treated unjustly by the tax burden caused when exercising their Incentive Stock Options. Under this important provision, employees will pay a fair and proportional tax on money actually made and will be relieved of the impossible burden of ongoing liability to pay taxes on income never received. This provision will help ensure that our companies continue attracting the best and brightest with competitive compensation packages.
stanfordkid 10y ago
My hunch is that the majority of revenue was forward looking with foreign governments and large clients. This revenue was used as the basis for raising at extremely high valuations. Investor diligence was weak and the exact terms of these contracts was likely not understood in detail. When shit hit the fan with the software/consulting services and the value was not realized (and or budgets were cut, key champions retired etc.) ... contracts got cancelled. When contracts got cancelled the house of cards started to fall. The issue with huge contracts is that it's very easy to lose them. This is why a broad revenue base is crucial. Now they know that hundreds of employees are going to go blow the whistle so they have to pay them off with buybacks while they figure out an exit strategy. My 2 cents.
krschultz 10y ago
There is an easier solution. Go public. I've gotten options in a private company, RSUs in a private company that got acquired, options in a public company, and RSUs in a public company. The only thing that I would count on an offer in the future are RSUs in a public company.
zxcvvcxz 10y ago
>Palantir's repurchase offer Yes, it's an offer. I don't see why everyone is so up-in-arms over an offer. People can reject offers just like they can make them. Other similar offers include employment offers. I'm going to comment more generally on this issue between founder and employee deals: Here's what I think. HN is mostly of the employee class and so there's a politicized negative sentiment about companies not leaning the way of the employees. Or maybe people think these offers and deals are bad for both the company founders and the employees. So here is my proposition if you believe that. Start your own company and enact whichever agreements you think are best. Do what Palantir does, or what YC advises, or whatever you make up. Give a 20 year exercise period if you want. Your call. But you have to actually found a company. I find it hard to believe in a moral "good and bad" on this issue. We're just talking about deals and contracts between people. And if people act with agency with regards to accepting and declining offers, and inventive individuals can come up with new systems and agreements that work better for everyone, then it will be fine. A moral bad would be something like Google and Apple and Facebook colluding behind closed doors to keep engineer pay below a certain threshold. For the employees who will have to negotiate: you can't get a deal that's good for you if you aren't prepared to walk.
ihsw 10y ago
Just pay people more.

131 points by mathattack 10y ago

> It also makes them agree to a nondisclosure arrangement that forbids them from even talking about the repurchase and waive any claims they might have against the company. And the offer extends to some but not all former employees. That smells funny and oddly specific.

codys 10y ago
Indeed. I'd be curious which employees (if any) were included, and why.

curiouscat321 10y ago

Does anybody think that this puts them closer to an IPO?

vonklaus 10y ago

I can't find the source so this is from memory; but Karp or Theil said they wouldn't ever go public and essentially can't because they are essentially a DoD contractor. While other companies notably do similar things and other contractors are public, Palantir provides a unique platform to some extent and their customer base, much of their technology and operations are secret. It is known they will not likely go public as it would be detrimental to their business and in-Q-tel (cia vc arm) is a major shareholder. While Silicon Valley does need to rethink some of the ways they compensate employees; especially at late stage private ones, I would not consider Palantir indiicative of a typical SV unicorn

bane 10y ago
All is not friendly in the shire, remember this post from a few years ago? https://www.quora.com/When-will-Palantir-go-public https://www.quora.com/When-will-Palantir-go-public
- vonklaus 10y ago
  In his response on quora he said he: * left palantir in 09 * is a major shareholder * left after he "had successfully replaced myself in both parts of the company we'd created and had fully vested". So I am not going to speculate whether he was pushed out, but it sounds like he has much less latitude for steering the company. Especially when you consider the power of the other founders and the initial VC capital that was put in. So this (claims of palantir going public) are what I would expect a major shareholder without control of the company to say. It is effectively the only way to put pressure on them. Even if this is wildly incorrect, and it quite possibly is, that comment was made several years after he had little more than an advisory role at palantir. https://www.quora.com/Why-did-Joe-Lonsdale-leave-Palantir https://www.quora.com/Why-did-Joe-Lonsdale-leave-Palantir
CPLX 10y ago
After seeing that name for probably half a dozen years, today for the first time I realized it's probably intended to be a cute mashup of the words "incubate" and "intel" Go figure.
spacecowboy_lon 10y ago
BAE,BT and qinetiq are quoted and do work for the MOD and DOD - if its such sensitive work then they would be crown servants (or what ever the equivalent is for the USA)

codys 10y ago

Palantir's official reason of "improving employee moral" doesn't seem to really mesh with the conditions they are imposing on the buy-back: > [...] employees who sell their shares agree agree that they will not compete with Palantir for 12 months or solicit any Palantir employees during that time [...] [and] agree to a nondisclosure arrangement that forbids them from even talking about the repurchase and waive any claims they might have against the company. The nyt put forwards a reasonable idea that this is a mechanism to increase their perceived value, and I'm inclined to agree. EDIT: the buzzfeed article [1] paints an even worse picture: > If they [employees] get any inquiries about Palantir from reporters, the contract says, they must immediately notify Palantir and then email the company a copy of the inquiry within three business days. [1]: https://www.buzzfeed.com/williamalden/palantir-seeks-to-muzzle-former-employees https://www.buzzfeed.com/williamalden/palantir-seeks-to-muzz...

argonaut 10y ago
Given that the buyback price is above market price, I don't see a problem with this. Palantir is compensating you for signing a noncompete/NDA. If you don't want to sign those things, you are free to sell on the private markets for less than what Palantir offers you.
- cbsmith 10y ago
  > you are free to sell on the private markets for less than what Palantir offers you Perhaps you are more aware of the terms on those shares than the rest of us, but generally you aren't quite "free" to sell the shares on the private market.
  - argonaut 10y ago
    Read the article more carefully: "Palantir did not impose restrictions on employees or stockholders selling shares in the private market."
    - cbsmith 10y ago

birken 10y ago

Boy this article is a very friendly interpretation of Scott Kupor's blog post. From NYTimes: > He [Scott Kupor] also suggests a longer period for employees to exercise options after they leave, up to 10 years. That figure is endorsed by Y Combinator in an argument that any lesser period is unfair to employees. Makes it seem like Scott Kupor is on the leading edge of caring about employees, in agreement with YC (which has actually been employee friendly in words and actions in regard to stock options). However, read Scott's actual blog post and he refers to the 10 year exercise idea incredulously: > The 10-year “solution” thus takes money/option value out of the pockets of the current (and growing) employee base to line the pockets of former employees who are no longer contributing to the business. > Talk about disenfranchising your remaining employees and not being able to attract new ones. Good reminder to always read your primary sources.

sverige 10y ago
Indeed it is. I particularly like the 'no longer contributing to the business' part, as if the work done by the original employees isn't what the current business was built on, at a discounted rate if their stock options are worthless. And as if the stock options were the only reason they're having trouble attracting quality talent. Stock options seem attractive as a form of compensation, since the hope is that you're working for a unicorn and one day you'll be fabulously rich, but the cash equivalent is better more often than not. It's just a form of risk transfer from those who have plenty to those who hope to have plenty by dint of talent and hard work. Having been burnt, I won't do it again.
- jegutman 10y ago
  I actually disagree with the 10yr time frame (although will admit it has its merits), but also agree with some of your logic. I just think that the 10yr "fix" solves some problems and creates others. I think this issue is that you should: A) not rob former employees of accrued stock value B) probably try to somewhat reduce incentives to leave if the company is going to continue to do well There are a few problems I see here: 1) stock option grants are completely arbitrary and sometimes end up very wrong 2) it's hard to fix that in the future because you'll end up at a higher strike price 3) end up being expensive and tax inefficient to exercise The closest I've seen to people who seem to get this and have sensible solutions are Andrew Mason at Detour (progressive equity) and Dustin Moskovitz at Asana (larger grants, but back loaded into years 4-6). I have great respect for Adam D'Angelo at Quora for suggesting a solution to the problem, have known him in school he's certainly smarter than me on almost every axis of intelligence, but I think there are other potentially creative solutions that might be better (although I don't know tax compliance). For example I think you could keep the status quo, but offer the option for employees to exchange their options for shares (white meat) at the time they can exercise. Example you have options for 100 shares at a strike price of $50, at the time you leave the shares are worth $100, instead of having to come up with $5000, you just get $50 shares free and clear. I think there's still a tax hit issue, but at least it's not doubled with paying for the shares.

BWStearns 10y ago

Wouldnt it be nice to have coworkers (ish, they both have positions at Berkeley) who can write willfully ignorant reinterpretations of your terrible ideas in the Times? Edit: I don't know for a fact that they are coworkers in a meaningful sense, of course a university is a large place, but I would expect a professor of law to have better reading comprehension than was on display here.

bane 10y ago

This sounds like a company in big trouble and trying desperately to stem attrition and improve tanking morale. According to crunchbase they're basically owned by a private equity firm now (which is rarely a fun place to be) and are raising something like a billion dollars a year -- which basically appears to be around what their operating costs are (employee count of that year * $250k/yr). They're either not bringing in any real revenue, or growing at the rate of revenue. Multiple raises per year (of weirdly different values) indicate frequent requests for more money. Are they growing or are they dying? Either way they aren't doing it through revenue, and they're not going public so the financials stay very hidden.

pmiller2 10y ago
Anybody who thinks this offer is meant to benefit employees isn't looking much beyond the surface. The fact that it includes a release of claims, a noncompete clause, and an NDA is a solid clue that this move is intended to benefit Palantir and not employees. Edit: forgot noncompete clause.
- mifreewil 10y ago
  That's all standard stuff. If I was at a company for 11 years, I'd sure as hell want to cash out. Whether their offer is a good price or not, who knows.
  - soup10 10y ago
    You can only cash out 12.5%. 12 month non-compete for a small cash out is a pretty double edged deal.
    - daemin 10y ago
      But if you are still working there and do not plan to move then being able to liquidate up to $500,000 worth of shares seems like a very good offer.
      - 10y ago

curiousDog 10y ago

They should still get props for the rate at which they were able to recruit from Stanf/MIT/Princeton etc.

Zigurd 10y ago
Big presence at CMU career events, too.
honkhonkpants 10y ago
Why should they "get props" for duping graduates into wasting time joining their flailing business? That sounds like a trick, not a benefit.
- curiousDog 10y ago
  Well yeah, you should be incredibly smart to trick the smartest graduates in the country to dedicate their lives to your so called "mission" :P. You should read some of the answers from their Director of Engineering, so incredibly cheesy.
- stale2002 10y ago
  Yeah, CMU grad here. My impression of Palantir is that they hire the top 1% of developers and pay them what a 50 percentile developer would make. If you ever get a palantir job offer, you'd be better off just forwarding it to Uber, or Google or FB, and waiting for them to give you a 50% increased counteroffer on the spot.
  - freditup 10y ago
    Curious what your estimate of a 50th and a 99th percentile developer salary is for a new grad? And do you mean a 50th percentile CMU grad, or a 50th percentile CMU grad developer, or just overall?
    - stale2002 10y ago
      Perhaps I exaggerate with the 99 percentile number, but the people I know who work at a top(high paying) company like Uber or Jane Street will get something like 150k easy (and maybe a signing bonus), and Palantir is more middle of the road with 100k base salary or less, and stock options of dubious value.

swingbridge 10y ago

This sounds like a move made out of desperation, not benevolence. Word on the street is that all is not well at Palantir.

fossuser 10y ago

Comments on this thread are not very interesting and generally off topic. This article points out an issue in SV which is that it's hard for employees to get value out of options held in companies that do not go public. One reason for this not mentioned in the article is that in the US the tax burden is extreme - partially because when it was implemented it expected companies to go public. If you hold options in a private company you get taxed on the exercise of those options based on the fair market spread which is the difference in price between your original strike price (the price of the options when they were granted to you) and the current fair market valuation. This is taxed as income. This is problematic since once exercised you're holding shares of an illiquid asset (since the company is not public) and they're difficult to sell. This means even if you save up enough money to exercise your options you'll get hit with a potentially enormous tax bill due that year that you can't easily sell your newly exercised options to pay for. Additionally when you sell the actual shares after you've exercised them you get taxed again on the sale. The one exception to this is if your options are ISOs (incentive stock options) then the delta between the strike price and the fair market value isn't taxed immediately, but it does count towards AMT (Alternative Minimum Tax) and it's fairly easy to hit the AMT while exercising options (meaning you could only exercise a tiny amount per year tax free). All of these things make it extremely difficult to realize any value in a private company without enormous amounts of upfront cash and also losing roughly half to taxes. It also makes it extremely difficult to exercise options outside of a liquidity event. This can also make it hard to leave a company since the agreements are often 90 days to exercise after leaving or you lose your options (there's also usually a ten year expiration date). If companies in SV intend to stay private and don't want their employees to view the options as impossible to liquidate we'll probably see an uptick in liquidity events like this one. The companies that value their employees will probably figure out a way to make this work.

honkhonkpants 10y ago
If you exercise shares in a dark market why don't you just mark them at zero? If they aren't trading you can just make up the price and that goes for any good not just shares of companies.
- 10y ago

solidsnack9000 10y ago

> Mr. Kupor notes that extending the exercise time for former employees makes their options more valuable at the expense of employees and investors. (It does so because former employees have a longer time to exercise their options and dilute the other shareholders.) This is simply a falsehood. Exercises of options of do not dilute shareholders -- new issuances do. Former employees do not issue new shares.

argonaut 10y ago
It's not an outright falsehood. He's referring to the (correct, but also insidious) fact that compared to a 90-day exercise window, more people will end up exercising under a more extended window - and this will dilute. In other words, extended windows reduce the number of options returned to the pool, and are thus slightly dilutive.
- mavelikara 10y ago
  So the dilution does not come from the exercise period; it comes from rank and file employees being unable to raise the required capital to exercise. So imagine if Kupor had said "We should not be paying employees any salaries; that puts cash in their pockets which enables them to exercise their options when they vest which leads to dilution for every investor" - that would have been an obviously ridiculous position. So is the statement OP is commenting on. On a side note, you have been defending Kupor in the other thread too with such nitpicks. Why?

ChuckMcM 10y ago

I could easily see the situation evolving that "unicorns" would either have to provide liquidity for options or pay over market rates. An engineer at FB or Google that getting paid in Restricted Stock units in addition to their salary sees it as "extra pay" and an employee who sees a company that will never let them sell options as not a smart place to work. It does open up some creative financing though. Imagine a "common only" startup, one where every share bought by investors or earned as an option had the same rights and liquidation preference. Or my favorite[1] starting a company with a fixed 5 billion shares all at a par value of $1 each. Then only pay your employee in shares, only get investments by selling shares to investors. [1] I call it a favorite since we joked at a party once that if you did this, and convinced a friend to buy a hundred shares for $100 you could call yourself a self made billionaire! And be completely truthful.

stromatew 10y ago

This puts them closer for an IPO for sure, buying stock today!

francoisLabonte 10y ago

What nobody talks about is the very good reason why employers give only 90 days after leaving a company to exercise options is that there is also a tax liability to the company for an employee exercising an option. Usually employer has to pay employment tax, now if you have a lot of options still unexercised from former employees and your stock has appreciated a lot the company can be on the hook for a lot of taxes. The company prefers only being on the hook for current employees. The true solution is to give stock options that can be exercised early as long as the value of the stock is very low such that an employee's hiring bonus after tax could cover the cost. There is no tax owed by the employee since he purchased shares with no gain and then you vest outright stock. Once the stock value goes up it would be best to grant RSUs of convertible notes that convert into stock.

harryh 10y ago
I'm pretty sure you are wrong about having to pay taxes if their are ex-employees with unexercised options. Citation?

kriro 10y ago

How does the non compete and soliciting work for ex-employees. Is it 12 month after they left (likely void/expired for some already) or 12 month after signing in which case some ex-employees probably can't even sign this. Either way I'm very skeptical of anything involving NDAs or non competes. I can understand a non poaching clause (but am also opposed to that on ideological grounds). If I could afford it I wouldn't sign anything that has NDAs or non disclosure. I also doubt that many of the ex-employees need liquidity as they are likely to hold well paying jobs. I suppose some could need it but those are probably exactly the people least likely to compete with Palantir.

abalone 10y ago

This is called a PLP (Private Liquidity Plan). The comments here are kind of vaguely negative but it's actually not a bad deal for employees. The main problem is that most pre-IPO companies can't afford it. It uses up capital that would otherwise go into operations.[1] Where it may make sense is in so-called "private IPOs", i.e. those 9 or 10 digit dollar rounds. There's enough money there to hand out. In olden days, companies would have been public by then and employees would have had liquidity. Planatir raised $880M last year so, yeah, they can afford it.[2] [1] http://venturebeat.com/2012/09/30/need-to-cash-out-a-bit-pre-ipo-consider-a-private-liquidity-program/ http://venturebeat.com/2012/09/30/need-to-cash-out-a-bit-pre... [2] https://techcrunch.com/2015/12/23/palantir-has-raised-880-million-at-a-20-billion-valuation/ https://techcrunch.com/2015/12/23/palantir-has-raised-880-mi...

nefitty 10y ago

Peter Thiel is a cofounder of Palantir. He is also on the board of directors of Facebook.

coldcode 10y ago

Exercising options in a non-public company should not be taxed or valued in any way until the stock can be sold in a public market or to a purchasing entity. Of course what are the odds Congress would ever do that? Nil.

Mtinie 10y ago
Can't this be mitigated to a large degree by setting the value per share to an tiny fraction of a dollar? Sure, you'll have a tax to pay when the shares are granted, but it should be reasonable. I could get behind the scheme you commented with, but I'm unsure of generally why we have the system we currently do, so I would want to understand the rationale for the status quo.
- hx87 10y ago
  It probably has something to do with preventing creative ways of liquidating illiquid assets, such as borrowing against the assets and promptly defaulting.
- x0x0 10y ago
  In my understanding, there's huge tax penalties, both to employer and employee, for giving employees in the money options. Thus options have to be granted with a strike that is fmv or something approximating it. Excessively sandbagging the valuation would, I think, be consider doing the above. Further, you don't think businesses are averse to golden handcuffs, do you?
mavelikara 10y ago
From https://lofgren.house.gov/news/documentsingle.aspx?DocumentID=365511 https://lofgren.house.gov/news/documentsingle.aspx?DocumentI...: H.R. 4351 also includes an Incentive Stock Option (ISO) provision that corrects a severe inequity in the AMT tax system and finally resolves the ongoing AMT Incentive Stock Option crisis. This essential provision provides relief for hard working Americans who are treated unjustly by the tax burden caused when exercising their Incentive Stock Options. Under this important provision, employees will pay a fair and proportional tax on money actually made and will be relieved of the impossible burden of ongoing liability to pay taxes on income never received. This provision will help ensure that our companies continue attracting the best and brightest with competitive compensation packages.

stanfordkid 10y ago

My hunch is that the majority of revenue was forward looking with foreign governments and large clients. This revenue was used as the basis for raising at extremely high valuations. Investor diligence was weak and the exact terms of these contracts was likely not understood in detail. When shit hit the fan with the software/consulting services and the value was not realized (and or budgets were cut, key champions retired etc.) ... contracts got cancelled. When contracts got cancelled the house of cards started to fall. The issue with huge contracts is that it's very easy to lose them. This is why a broad revenue base is crucial. Now they know that hundreds of employees are going to go blow the whistle so they have to pay them off with buybacks while they figure out an exit strategy. My 2 cents.

krschultz 10y ago

There is an easier solution. Go public. I've gotten options in a private company, RSUs in a private company that got acquired, options in a public company, and RSUs in a public company. The only thing that I would count on an offer in the future are RSUs in a public company.

zxcvvcxz 10y ago

>Palantir's repurchase offer Yes, it's an offer. I don't see why everyone is so up-in-arms over an offer. People can reject offers just like they can make them. Other similar offers include employment offers. I'm going to comment more generally on this issue between founder and employee deals: Here's what I think. HN is mostly of the employee class and so there's a politicized negative sentiment about companies not leaning the way of the employees. Or maybe people think these offers and deals are bad for both the company founders and the employees. So here is my proposition if you believe that. Start your own company and enact whichever agreements you think are best. Do what Palantir does, or what YC advises, or whatever you make up. Give a 20 year exercise period if you want. Your call. But you have to actually found a company. I find it hard to believe in a moral "good and bad" on this issue. We're just talking about deals and contracts between people. And if people act with agency with regards to accepting and declining offers, and inventive individuals can come up with new systems and agreements that work better for everyone, then it will be fine. A moral bad would be something like Google and Apple and Facebook colluding behind closed doors to keep engineer pay below a certain threshold. For the employees who will have to negotiate: you can't get a deal that's good for you if you aren't prepared to walk.

ihsw 10y ago

Just pay people more.