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Keep in mind when you say "stock options," it can mean different things. The first thing that comes to my mind when you say "stock options" is options trading o

Keep in mind when you say "stock options," it can mean different things. The first thing that comes to my mind when you say "stock options" is options trading on publicly traded companies. That is buying and/or selling contracts of puts and/or calls. The second is "stock options" at private companies as compensation, which is what you are referring to. There are many variations on how this works. I've seen companies, as a bonus, grant what amounts to a call option that can't traded and only exercised at some point in the future. This may be free or you might have to pay for it. I was once given stock as a bonus at a startup, making me an owner. Being an owner didn't pay me any sort of dividend, but it massively complicated my income taxes by giving me a K-1 in May (after April 15th). Additionally, I owed tax on my percentage of ownership, which was really a pain. The other gotcha but I wasn't allowed to be an owner unless I worked there. So when I quit, I got cashed out at "fair market value," which was a B.S. number they made up and gave me a couple thousand dollars. I also got diluted by half while I was an "owner." The experience made me very leery of ownership. Now I just look for salary.

stockoptionsta 10y ago
You're right, I thought it would be clear from the context that I'm talking about employee stock options. It seems like your experience with stock kind of proves my point and reveals the employee side of this problem — because you didn't fully understand how all these things work, and no one explained it to you — you had much different expectations. And now, instead of incentivizing you to stay, you employer leaves you frustrated and basically incentivizes you to leave.
- planteen 10y ago
  Yeah, I agree, that is a good way to put it. The K-1s were such a mess... I think I got 15-20 pages worth of complex tax documents. It was especially messy since we had a part ownership of another company in a different state. I don't consider myself a financial dunce either (I can handle W-2s and 1099s fine). Employee stock purchase & RSU awards at big companies are honestly so much more straightforward (and fair). The way I got diluted also made me really take the advice to heart I always hear on HN - when there is a buyout, the executives will be the ones at the table arguing for themselves to get paid. But nobody is going to be there for you.
DaiPlusPlus 10y ago
So is that why companies issue options instead of direct equity because it spares the employees the hassle of dealing with actual ownership issues (K-1s, additional taxes, etc)? The problem with looking at just salary is that salaries all tend to cap out (in my area, Seattle, you'll be hard pressed to find anything above $160k, when you get to that point compensation really starts to skew in favour of equity - especially as RSUs or Options - sometimes an order of magnitude greater than salary (e.g. "Partner"-level rank at Microsoft is easily $1m/yr in RSUs, but only about $200k/yr in salary.

stockoptionsta 10y ago

You're right, I thought it would be clear from the context that I'm talking about employee stock options. It seems like your experience with stock kind of proves my point and reveals the employee side of this problem — because you didn't fully understand how all these things work, and no one explained it to you — you had much different expectations. And now, instead of incentivizing you to stay, you employer leaves you frustrated and basically incentivizes you to leave.

planteen 10y ago
Yeah, I agree, that is a good way to put it. The K-1s were such a mess... I think I got 15-20 pages worth of complex tax documents. It was especially messy since we had a part ownership of another company in a different state. I don't consider myself a financial dunce either (I can handle W-2s and 1099s fine). Employee stock purchase & RSU awards at big companies are honestly so much more straightforward (and fair). The way I got diluted also made me really take the advice to heart I always hear on HN - when there is a buyout, the executives will be the ones at the table arguing for themselves to get paid. But nobody is going to be there for you.

DaiPlusPlus 10y ago

So is that why companies issue options instead of direct equity because it spares the employees the hassle of dealing with actual ownership issues (K-1s, additional taxes, etc)? The problem with looking at just salary is that salaries all tend to cap out (in my area, Seattle, you'll be hard pressed to find anything above $160k, when you get to that point compensation really starts to skew in favour of equity - especially as RSUs or Options - sometimes an order of magnitude greater than salary (e.g. "Partner"-level rank at Microsoft is easily $1m/yr in RSUs, but only about $200k/yr in salary.