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It depends a lot on the pricing of that $100K. If that's based on price at time of vesting you run into big problems -- that's not how ISO's work currently but

by TimPC 9y ago

It depends a lot on the pricing of that $100K. If that's based on price at time of vesting you run into big problems -- that's not how ISO's work currently but it's unclear exactly what is going to change in this bill. Say you get $50K/year in stock at the valuation based on the time you join the start-up and the start-up has on paper 10X growth in 2 years. In your 3rd year, your $50K of stock is $500K on paper so the last $400K would be over the $100K limit and immediately taxable even though you cannot sell the stock yet. If the tax is setup to make $100K of value at time of employment contract exempt from taxing as ISO's, then the problem is far smaller as the tax events are predictible and manageable.

sulam 9y ago
I tried to be clear above -- the cap is based on the grant value, not the vested value -- ie it is strike price, not 409A (or other) exercise value. Really, if you think about it, it could only be this way. You can't predict the future value of your company. If I give you an ISO grant now, but the company doubles in value next year and puts you over the cap, we're in a pickle.
- TimPC 9y ago
  The other thing to keep in mind is how much comp is the right to in the future buy $100k present value of stock for $100k. Even if that option prices at 20% the “100k” is only 20k of comp. For many positions 100k/year of stock may be too limiting. If there are ways to manipulate the share value of the class of shares you are getting to a small fraction then it might work. But if this excise price is the VC round price for a worse class of share the amount of comp here is fairly small.
  - sulam 9y ago
    The common vs preferred spread is usually enough to make this a non-issue unless you are a very well-paid executive. This is why I was careful to say the _average_ employee is likely to do better, strictly in terms of startup compensation.

by TimPC 9y ago

sulam 9y ago

I tried to be clear above -- the cap is based on the grant value, not the vested value -- ie it is strike price, not 409A (or other) exercise value. Really, if you think about it, it could only be this way. You can't predict the future value of your company. If I give you an ISO grant now, but the company doubles in value next year and puts you over the cap, we're in a pickle.

TimPC 9y ago
The other thing to keep in mind is how much comp is the right to in the future buy $100k present value of stock for $100k. Even if that option prices at 20% the “100k” is only 20k of comp. For many positions 100k/year of stock may be too limiting. If there are ways to manipulate the share value of the class of shares you are getting to a small fraction then it might work. But if this excise price is the VC round price for a worse class of share the amount of comp here is fairly small.
- sulam 9y ago
  The common vs preferred spread is usually enough to make this a non-issue unless you are a very well-paid executive. This is why I was careful to say the _average_ employee is likely to do better, strictly in terms of startup compensation.