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If this is an honest question... an employee who left the firm after 2013 and wanted to exercise their stock options needed to pay taxes up front on shares they

by btown 9y ago

If this is an honest question... an employee who left the firm after 2013 and wanted to exercise their stock options needed to pay taxes up front on shares they received, based on the company's then $700mm+ valuation. But now the price of those shares is significantly less, based on the $100mm sale price. So they ended up paying more in taxes on their stock than they can receive now from the sale of their stock. This article explains the dynamics well: https://www.recode.net/2016/1/19/11588918/gilt-groupe-is-a-cautionary-tale-for-startup-employees-banking-on https://www.recode.net/2016/1/19/11588918/gilt-groupe-is-a-c... In this case, one of the controversies is that company leadership may not have taken such a low sale price (given that they initially had offers of more than twice that) had they not been compensated with personal payoffs outside of the equity structure.

nshelly 9y ago
Right, but the $700m valuation was preferred, and the employees likely paid AMT tax on the FMV (about 10-30% of that value). It's certainly sad but at least they can write off the AMT loss against capital gains if they have any and wish to, or take the $3,000 credit every year.
- caseysoftware 9y ago
  But that is the nasty part. The taxes were paid up front while the credit will be applied over years. Odds are they had to liquidate something else, borrow money, etc so it's not just the lost equity but the opportunity cost. There's always the "they knew they could lose it!" line but if the leadership was lying internally and externally, I hope they get sued into oblivion.
- bfritton 9y ago
  The article was stating that the employees who exercised their options didn't actually gain any cash. They paid taxes on the "value" of the shares they received (converting from options to actual stock), and not on any real sweet cash money. I think the point is that for most of these people, even if parts of that loss may be recoverable later on (not sure about that), being out $40k - $100k+ on what was a badly misrepresented liklihood stings against execs getting their preference and bonus pool shares. The incentives did not line up, like their press release conflated.

by btown 9y ago

nshelly 9y ago

Right, but the $700m valuation was preferred, and the employees likely paid AMT tax on the FMV (about 10-30% of that value). It's certainly sad but at least they can write off the AMT loss against capital gains if they have any and wish to, or take the $3,000 credit every year.

caseysoftware 9y ago
But that is the nasty part. The taxes were paid up front while the credit will be applied over years. Odds are they had to liquidate something else, borrow money, etc so it's not just the lost equity but the opportunity cost. There's always the "they knew they could lose it!" line but if the leadership was lying internally and externally, I hope they get sued into oblivion.
bfritton 9y ago
The article was stating that the employees who exercised their options didn't actually gain any cash. They paid taxes on the "value" of the shares they received (converting from options to actual stock), and not on any real sweet cash money. I think the point is that for most of these people, even if parts of that loss may be recoverable later on (not sure about that), being out $40k - $100k+ on what was a badly misrepresented liklihood stings against execs getting their preference and bonus pool shares. The incentives did not line up, like their press release conflated.