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Uber lawsuit alleges employees were misled on equity compensation
- Animats 10y agoWhat do you do with Uber stock? They're not a public company. It's possible, but not easy, to sell Uber shares to sophisticated investors in bulk.[1] From the article: "Uber is rumored to go public within the next two years." Not unless they stop losing money so fast. [1] https://www.bloomberg.com/news/articles/2016-05-20/selling-uber-shares-may-be-tougher-than-you-think https://www.bloomberg.com/news/articles/2016-05-20/selling-u...
- jayjay71 10y agoI realize Uber is a big company and it obviously deserves some press, but I'm surprised just how many articles about Uber have made it to the front page of hacker news the past few days. And (almost) all of them have been very negative. I wonder if public perception will change and people will use their competitors more? Probably not enough to be noticeable. I wonder how Uber considers managing its brand, as they rarely seem to shy away from bad publicity. With regards to this specific article, how common is this practice at other startups? From anecdotal experience, it seems common for startups to under inform employees with regards to their equity and how it works. I rarely meet a startup employee who understands what their equity is worth.
- EpicEng 10y agoWell, multiple negative events have occured re Uber this week. Makes sense.
- chrischen 10y agoI don't think I've ever seen positive press about Uber and I think the negative press has helped it way more in getting mindshare than it hurt. After all, many people still have not used Uber, and many people also disagree with a lot of the bad press.
- vertex-four 10y agoThere was a lot of early positive press about Uber, especially in media aimed at tech workers, businesspeople, etc.
- withdavidli 10y agoMaking it top front page: Uber and AirBnB are likely the two startups that most people are waiting to see IPO (Dropbox like a year or two ago). Any of these companies is bound to garner attention when something big happens. Uber is also aggressively recruiting. Many people on this board probably have been contacted by them or have been made offers by them. For what their comp promises, this would be very important for them, especially if they didn't do their due diligence on the company's financials and how their stock awards were set up. I agree that very few people know how their stock works. To the valley's credit, a lot of places do RSUs which is a simple matter. But I definitely spoken with folks that didn't realize their exercise rights had expired.
- TeMPOraL 10y ago> Making it top front page: Uber and AirBnB are likely the two startups that most people are waiting to see IPO I upvote those articles for a different reason - Uber is the single company I'm most waiting to finally die, possibly with enough mess around it to finally drive the point that sociopathic behaviour and blatantly breaking the law is not a way to run a company in a civilized society.
- withdavidli 10y agoThis too. No doubt they accumulated much hate for different reasons. Guess it would be better said if it's gonna be a boom or bust. I've been feeling like an IPO isn't going to happen for Uber for about a year now. There's a passage in Ben Horowitz's book that went "we drove so fast off that cliff we didn't leave treadmarks", paraphrasing. That's how I feel about Uber once news came out about how they were doing in China, then the new about spending near $1B in 6 months. People argue with me that institutions are dying to get into deals like Uber, but I don't know many institutions able to burn billions a year into a single investment. They get investors, they get loans. It's all good until no one is willing to put up more money and then it just fades away (or acquired like someone else said, but at what valuation? look at twitter from $70B to $11B now).
- meddlepal 10y agoThe lesson Uber has taught me at scale is that if you break the law make sure you break a law that has perceived benefit to the people. Uber has the hearts and minds of the population because it's perceived as de-fucking the Taxi industry regardless of how it's gotten to where it is.
- danpalmer 10y agoIf we've learnt one thing this year, it's that negative press doesn't have the effect most people feel it should.
- derwiki 10y ago"I don't care what they say about me, just make sure they spell my name right!" -- P.T. Barnum
- HappyTypist 10y agoThere is no tax _difference_. The only question is when you pay your taxes (on options above n 100,000); it's merely a cash flow thing. The TechCrunch arthor misunderstands that somehow there are tax savings (there are none; the strike price doesn't change over the course of the option plan). Pretty much everyone prefers the six month cliff.
- CalChris 10y ago> Yet, months after employees started work, Uber breached its Employment Agreements by systematically imposing a different exercisability schedule than contained in the Employment Agreements which, according to Uber, disqualified most of the options from ISO treatment while presumably affording Uber with millions of dollars of tax deductions. So this wasn't the TechCrunch author misunderstanding tax law. It is straight quoted from the lawsuit.
- tomnipotent 10y agoSo you don't consider ISOs triggering the alternative minimum tax (AMT) on exercise as a tax difference? Or that a company can deduct the spread when NSOs are exercised? These are non-trivial tax differences.
- bickfordb 10y agoAlso, AMT credits: http://www.marketwatch.com/story/an-upside-to-the-alternative-minimum-tax-2014-04-01 http://www.marketwatch.com/story/an-upside-to-the-alternativ...
- tyre 10y agoThat isn't true in every circumstance. Let's say an employee has personal savings $100,000 and is granted $100,000 in stock. If they have to pay 20% tax on what they exercise, then they can only exercise ~$83,000 of their options. The remaining $17,000 worth will need to be exercised at a later date. Let's say the company then gets sold 3 years later and the employee's stock is worth twice what it was when they were offered it. The employee's additional stock now is exercised immediately and the difference of $17k between the strike price and the sale price is taxable as income. Had they been able to exercise that $17k worth of stock 6 months after joining—which they would have had the money to do if they hadn't had to immediately pay tax on the amount they exercised—then that $17k would have been taxed as long-term capital gains, at a lower rate.
- Analemma_ 10y agoBoy, this is shaping up to be a terrible week for Uber isn't it? Kicked out of California, the Naked Capitalism post about their inevitable doom is gaining attention, $800MM loss this quarter, the UK labour board ruling means they may have to (retroactively and in the future) pay VAT, and now this. Couldn't happen to a nicer group of people /s
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- edgyswingset 10y agoI'm certainly happy. I can't think of a single company that as "ruined it" for startups more than Uber. Skirting around laws and regulations combined with absolutely insane valuations must have put completely unfair pressure on other startups.
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- ig1 10y agoUber's last valuation is 12x ($66bn = $5.5bn x 12) on annual revenue growth of 275% - 12x doesn't seem an unreasonable multiple. The valuation isn't artificially high, it's a result of an unprecedented growth curve.
- jayjay71 10y agoSure, but their sales are subsidized by VC dollars. I don't have all the data, but everything I've heard in every city says Uber pays drivers more than they charge riders, hence the enormous 10 digit losses annually. And once they raise rates, people will use their services drastically less. The question is can they make driverless cars work before they run out of money? And I really, really doubt it. That's many years away, and I don't think Saudi Arabia is going to give them a few more billion dollars.
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- kevinburke 10y agoOn a related note about candidates not understanding offers, has Uber stopped the practice of calling candidates in the morning, making them an offer, and demanding that they accept or decline by the end of the day? I doubt it was helping candidates understand their compensation package. I worked at a competing company a few years ago and we had to deal with this with many candidates we were recruiting.
- ndirish1842 10y agoFWIW, I've had a few friends receive entry level offers (as software engineers) recently and they all had no deadline to accept
- aisofteng 10y agoEntry level engineers are generally easily replaceable.
- Merad 10y agoEntry level offers made to students are really an entirely different ballgame. They're usually made months in advance of the expected start date, often as far out as 8-10 months.
- ndirish1842 10y agohence the FWIW ;)
- ndirish1842 10y ago*EDIT: To be clear offers from Uber
- pdxandi 10y agoThis happened to me a few months ago at a different company and I was shocked by how unprofessional I thought that approach was. I ended up declining the offer because I thought that kind of pressure to commit was an indicator of how poorly the company may be run. It was for a senior level position and I had been at the same firm for nearly five years and it just seemed unnecessarily aggressive.
- thesimpsons1022 10y agouber seems to be run very poorly from my exposure to them. when i was applying for jobs, they contacted me and said that theyd interview me in 2 to 3 weeks. My deadline for another company was in 3 weeks as well. They failed to schedule anything and contacted me after 3 weeks were up and said it'd be another month before they could interview me. For reference, Facebook flew me out and interviewed me on campus 2 days after I had my phone interview and 3 days after they contacted me originally. Either way, I wouldn't work there in a million years considering everyone i've ever met that works/interns there said they worked 60 hour weeks.
- Tempest1981 10y agoYour 60 hour week comment refers to Facebook, or Uber, or both?
- thesimpsons1022 10y agouber. talked to an intern there and they said it was standard to not leave until after 10pm.
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- abalone 10y agoWait, wouldn't the AMT apply to his desired all-ISO scenario anyway? This is an actual problem; people can't afford to buy their ISOs either because of the AMT. What's the actual damage here done by NSOs?
- choppaface 10y agoYes, there would probably be a lot of AMT to pay, but the taxes aren't immediately due as it is with non-quals / NSOs. Furthermore, the AMT can be used as a credit in later tax years depending on how one does their accounting... ISOs are very complicated. When one exercises an NSO, the company must legally withhold or collect money somehow (at the very moment of the exercise) to cover the employee's tax liability. When the stock is not public (or upon an employee's election), the employee must pay cash up-front. Thus it can be impractical or impossible to gain anything from NSOs while the company is private. Another factor is that even if the employee can cover the taxes, the shares could lose potentially all their value at some later time. In this case the employee loses MORE than the value of the stock because they're also out of pocket for the taxes paid. (I've personally gone through essentially this latter situation). I've heard of Uber employees getting special deals from banks and mutual funds that forward them cash to exercise the shares; in exchange the banks get some percentage of the shares (or nothing if Uber does not IPO by some date). There are some ROFR issues here (pre-IPO Facebook employees tried to do similar things) so I'm not sure how well it actually works. It's certainly damn complicated. I've personally had ISOs, NSOs, RSUs, and another special other type of stock agreement at different points of time. I've had an accountant charge me $1800 to handle some ISO / AMT complexities on stock that didn't make me much money (I actually had net losses on most of the shares due to taxes). I've had managers, directors, and legal teams give me false or misleading information about what ISO / NSO packages were worth. These games are really not worth it for stock packages worth (even in the very best of outcomes) ~$1m or less. (Unless you're a laywer or biz-dev kinda person and enjoy them! ) My recommendation for makers / individual contributors: request RSUs if possible and prefer a simpler path to having taxes-paid money in the bank. Outstanding employees who really move the needle deserve exec teams who can deliver compensation that's valuable without tax games. Employee time should be spent on product and furthering the craft, not legal BS.
- calcsam 10y agoUber's attracted a lot of attention over how it issues stock, because as the largest private unicorn, there are billions of dollars of wealth currently locked up in illiquid stock held by employees who would prefer to sell it. With all this pressure building up in the kettle, it spills over from time to time into lawsuits like this one. It's worth remembering that starting in 2013, Uber started blocking secondary stock sales and sometime in 2015 shifted from issuing options to RSUs. This had two effects beneficial to Uber: it created golden handcuffs for early employees, and prevented Uber from being subject to SEC disclosure requirements as the number of shareholders expanded. Uber's practices on stock options are fairly unique in several aspects: * a 30-day exercise window if you leave (even shorter than the much-disliked 90-day windows!) * restricted "trading windows" where employees can only exercise options during four or five months of the year. Mixed with a short exercise window, this can be poisonous, imagine if you left the company and couldn't exercise your options before you left. This happened to a friend of mine at a now-public company; he lost about a hundred and thirty thousand dollars. * the ability to early exercise stock (eg, before it has vested), starting six months into an employee's tenure. Uber's main counterargument is that the plaintiff is a sophisticated individual (Stanford Law grad, experienced engineer), and he should have been aware that early exercising more than $100,0000 worth of ISO-type stock options converted them to NSOs. This is probably true, but if an engineer with a law degree screwed this up, imagine what's happening to everyone else.
- chimeracoder 10y ago> Uber's main counterargument is that the plaintiff is a sophisticated individual (Stanford Law grad, experienced engineer), and he should have been aware that early exercising more than $100,0000 worth of ISO-type stock options converted them to NSOs. It's more confusing than that. If your equity is valued at more than $100,000, if you exercise even one share early, the entire grant above $100,000 converts to NSOs. This is a really, really easy point to trip up on.
- chrisabrams 10y agoIs this for any company or just Uber?
- JumpCrisscross 10y agoThis sounds like a recent exchange I was relayed regarding Magic Leap. There, a former employee was promised certain rights––in writing, no less!––only to be defaulted on by the company's counsel, again in writing. Until this fraud is prosecuted, its costs are too cheap for its benefits.
- rajacombinator 10y agoGonna be hilarious watching this company go down in flames. Unfortunately it is sure to burn a hole in the 401ks of America during the process.