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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

by 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.
  - argonaut 10y ago
    There's a huge tax hit. Giving shares is taxed as ordinary income.
    - lmm 10y ago
      All of these things should be taxed as ordinary income. Companies shouldn't be able to do an end-run around taxation by giving you valuable stuff instead of giving you money directly.
      - argonaut 10y ago
        Companies are not doing an "end-run" around taxation by using the tax codes as they are intended to be used when granting stock options. In fact, I was pointing out that the poster I was replying to's complicated scheme was actually an "end-run" towards paying way too much in taxes.
      - deleted 10y ago
        [deleted]
      - rplst8 10y ago
        > Companies shouldn't be able to do an end-run around taxation by giving you valuable stuff They already do in the form of health and retirement benefits.
        lmm 10y ago
        Where I live health benefits are taxable. There are tax incentives for pensions (presumably intended to encourage saving?) which I guess I oppose too.
        humanrebar 10y ago
        And tying an individual's future (health insurance, retirement, immigration status) to an employer is a bad thing.
        10y ago
- lbatx 10y ago
  Exactly. Plus the phrasing of the criticism is so odd: "no longer contributing to the business." Let's all accept that as true, so allowing original employees' to purchase for a longer time period simply preserves their ability to be rewarded for their work. That's a good thing, not a bad thing. Plus, the dilution argument is pretty weak: the employee pool is usually 10-20%. So investors get diluted by 10%. Whoopee.
- CPLX 10y ago
  Indeed. Other people no longer contributing to the business include the VC's and angel investors by the same logic. Either the former employees were paid full market rate salaries during their employment, in which case the company colossally fucked up by giving shares to them for literally no reason, or those former employees made a capital contribution just like any other investor.
- adrianN 10y ago
  Yeah, if you want to tie your income to the risks of running a startup, just found one yourself.
- abalone 10y ago
  Kupor's mentality stems from dealing with co-founders who leave right after they complete their 4 year vest, well before IPO/acquisition.[1] While they certainly laid a foundation for the company, there's a lot of work still to be done to get to a liquidity event. Is it fair for them to leave with a huge stake and let the other co-founder(s) and employees figure it out? This is where he gets to phrases like "no longer contributing" or "wealth transfer". Essentially he's saying the vesting schedule doesn't capture everything an option should incentivize. Having said that, I think he's over-applied this mentality to regular employees with much smaller stakes. It is reasonable to expect a founder to stay 10 years with a company. Not most employees. [1] http://a16z.com/2015/10/19/prenups-for-co-founders/ http://a16z.com/2015/10/19/prenups-for-co-founders/
  - st3v3r 10y ago
    If that's the case, is it fair for founders and VCs to take such a huge stake, considering all of the actual work is done by the other people who work there?
malz 10y ago
Palantir was founded 11 years ago, which shows there's nothing magic about the proposed 10-year exercise period. You might still be waiting for your unicorn to provide an exit (which will feel increasingly mythical, like its namesake).

by birken 10y ago

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.
- argonaut 10y ago
  There's a huge tax hit. Giving shares is taxed as ordinary income.
  - lmm 10y ago
    All of these things should be taxed as ordinary income. Companies shouldn't be able to do an end-run around taxation by giving you valuable stuff instead of giving you money directly.
    - argonaut 10y ago
      Companies are not doing an "end-run" around taxation by using the tax codes as they are intended to be used when granting stock options. In fact, I was pointing out that the poster I was replying to's complicated scheme was actually an "end-run" towards paying way too much in taxes.
    - deleted 10y ago
      [deleted]
    - rplst8 10y ago
      > Companies shouldn't be able to do an end-run around taxation by giving you valuable stuff They already do in the form of health and retirement benefits.
      - lmm 10y ago
        Where I live health benefits are taxable. There are tax incentives for pensions (presumably intended to encourage saving?) which I guess I oppose too.
      - humanrebar 10y ago
        And tying an individual's future (health insurance, retirement, immigration status) to an employer is a bad thing.
        10y ago
lbatx 10y ago
Exactly. Plus the phrasing of the criticism is so odd: "no longer contributing to the business." Let's all accept that as true, so allowing original employees' to purchase for a longer time period simply preserves their ability to be rewarded for their work. That's a good thing, not a bad thing. Plus, the dilution argument is pretty weak: the employee pool is usually 10-20%. So investors get diluted by 10%. Whoopee.
CPLX 10y ago
Indeed. Other people no longer contributing to the business include the VC's and angel investors by the same logic. Either the former employees were paid full market rate salaries during their employment, in which case the company colossally fucked up by giving shares to them for literally no reason, or those former employees made a capital contribution just like any other investor.
adrianN 10y ago
Yeah, if you want to tie your income to the risks of running a startup, just found one yourself.
abalone 10y ago
Kupor's mentality stems from dealing with co-founders who leave right after they complete their 4 year vest, well before IPO/acquisition.[1] While they certainly laid a foundation for the company, there's a lot of work still to be done to get to a liquidity event. Is it fair for them to leave with a huge stake and let the other co-founder(s) and employees figure it out? This is where he gets to phrases like "no longer contributing" or "wealth transfer". Essentially he's saying the vesting schedule doesn't capture everything an option should incentivize. Having said that, I think he's over-applied this mentality to regular employees with much smaller stakes. It is reasonable to expect a founder to stay 10 years with a company. Not most employees. [1] http://a16z.com/2015/10/19/prenups-for-co-founders/ http://a16z.com/2015/10/19/prenups-for-co-founders/
- st3v3r 10y ago
  If that's the case, is it fair for founders and VCs to take such a huge stake, considering all of the actual work is done by the other people who work there?

malz 10y ago

Palantir was founded 11 years ago, which shows there's nothing magic about the proposed 10-year exercise period. You might still be waiting for your unicorn to provide an exit (which will feel increasingly mythical, like its namesake).