8 ms·

The thing most people forget about options & RSU is that one is taking away a big chunk of the TC and delay it to a future year. Even when you hate your job, yo

by harikb 6y ago

The thing most people forget about options & RSU is that one is taking away a big chunk of the TC and delay it to a future year. Even when you hate your job, you will be hesitant to leave the company because of FOMO and sunk cost fallacy That said, anecdotally, every one of my close circle of friends made decent amount money from equity (one of the many companies they worked at did very well) - far higher than the 10% stat that I hear talked about. May be the last two decades was lucky for this group of people.

dhosek 6y ago
I have never had a stock option that was worth as much as a penny in the course of my career. In one case, a “can't lose” employee stock purchase program (where you put aside money for purchase and at the end of the year you would get stock bought at the lower of the price at the beginning and end of the purchase period with a 10% discount on top of that) ended up being a loss because the stock dropped 50% between the purchase of shares and delivery of the shares. The company was eventually bought out by 3M and I got a hundred bucks or so out of my initial investment (which was, thankfully only a thousand or two, if I recall correctly).
- laurent92 6y ago
  A company sold for 3 million is... I mean, in average, I see that the worth is about 1m$ per employee. If you sold for less, your stock performed poorly compared to others. Maybe the product or the engineering was great, but on the wrong market or never met its window. Business is difficult. The question is, would you have had excellent returns if the company had been worth $1m per employee?
  - Cd00d 6y ago
    I think OP was saying the company 3M bought the startup. Not that the startup was sold for $3mm.
  - saalweachter 6y ago
    In addition to the $3m/3M confusion, don't forget preferential liquidation. If you own 10% of a company and it sells for 2x the invested value, you might get < 5% of the sale price yourself once the investors are taken care of.
CydeWeys 6y ago
> The thing most people forget about options & RSU is that one is taking away a big chunk of the TC and delay it to a future year. That's not my experience. My TC is the amount I'll actually make this year (and have made in previous years), which includes my salary, bonus, and the value of the RSUs at vesting, which I auto-sell. I'm not "delaying" anything; I'm making great money right now. Unvested shares only matter to the extent that your future income might over/underperform current predictions to some extent. I definitely don't consider them "mine" yet in any way; they're simply a leading indicator of my estimated future TC at this company if I continue to stay employed here. Options, yes, are a different matter, but RSUs in big companies are almost as good as cash (and when the market is going up, as it has been this past decade, they're better than cash).
- AnHonestComment 6y ago
  I think the point is HR counts your options 1 year in as part of year 1 comp, which it obviously isn’t.
- rattray 6y ago
  The comment you're replying to is talking about RSU's in startups (illiquid) not public companies.
FartyMcFarter 6y ago
> The thing most people forget about options & RSU These two are very different things and they shouldn't be conflated. If you have FAANG RSUs vesting every few months or every year, you can convert them to cold hard cash on a regular basis. Options in a startup, or a company that isn't traded publicly are a different animal.
- walshemj 6y ago
  Very much so I (UK) have made some nice tax free returns on FTSE 100 companies share saves. Pity we didn't get an exit back in 2000 when I had 0.5% of Poptel (everyone was a dollar millionaire at one point). At the moment I have EMI shares in my current employer which vest on change of control
ptmcc 6y ago
Let's be careful here and not conflate options and RSUs, especially comparing between startups and public companies. Options in a startup are extremely likely to be worth nothing, ever. Not only does the company need some sort of liquidity or exit event, but the valuation then also has to be higher than the strike price on your options. And options usually have punishing exercise-or-lose-them requirements if you leave the company before a liquidity event. RSUs, once they vest, are yours without having to exercise them. If it's a public company you can turn around and sell them on the open market immediately if you desire and get cash for them. If the company's stock declines, your RSUs are still worth something since the "basis" is $0. If you leave the company, your vested RSUs are still yours. Yes 1-year cliffs for vesting are common and do defer compensation, but 1 year is not a long time at all to be at a company especially a large public company. After the first year the regular vesting cadence sets in and it's just a slightly more complicated form of cash, with market risk. Over the past few years that market risk has hugely benefitted most tech companies and RSU recipients. In 2020 my RSU comp was more than 50% of my total comp, basically doubling my (already high) base salary. ESPP further compounded that.
- dilyevsky 6y ago
  It’s still possible to lose money on rsus if the company value plummets bc they are taxed on liquidity event (assuming double trigger vest)
  - rblatz 6y ago
    You can also elect to be taxed at the time of the grant via an 83b election.
- reissbaker 6y ago
  RSUs are trickier than that if you work at a non-public company (e.g. a startup). For example, they actually do typically expire if the company doesn't have a liquidity event within a certain timeframe -- and unlike options, if the expiration date comes up you have no recourse; with an option, you can at least exercise it, at which point it becomes common stock and you own it outright. As a personal example, I previously worked at Airbnb and had a mixture of options and RSUs. Some of my RSUs were only months away from their expiration date when the company went public; if anything had delayed the IPO much longer, they would have disappeared. With the options, I could have bought them and prevented them from disappearing even had the company not gone public. As a result, leading up to the IPO I was moderately worried about my RSUs, but not particularly worried about my options. FWIW, you're probably thinking about ISOs ("incentive stock options") when you refer to the "punishing exercise-or-lose-them requirements;" companies can also offer NQSOs ("non-qualified stock options"), which are less tax-advantaged but can offer long exercise timeframes even after you leave the company. A lot of the "unicorn" startups, including Airbnb, allowed ISO holders to convert to NQSOs for that reason. Options vs RSUs is a tricky subject and the ideal choice varies based on circumstance.
xapata 6y ago
> my close circle of friends That's extreme selection bias. One of the major ways startups recruit is via friends.
kelnos 6y ago
I don't think that tracks with reality. If my company suddenly decided to do away with equity comp, they would not replace all the potential earnings with base salary. Base salary would be higher, sure, but still much lower than the salary+equity package. I think more companies now have a policy where your RSUs vest every quarter, and there's no cliff (except for possibly the first new-hire grant[0]). So yes, it's delayed, but in practical terms you get your first vest within 3 months of getting the grant. (And if your company doesn't do refresh grants periodically, and equity is important to you, you should find another company.) > Even when you hate your job, you will be hesitant to leave the company because of FOMO and sunk cost fallacy This is unfortunately true. I do know people who aren't happy in their job (maybe not to the point of actively hating it), but stick around because of their golden handcuffs. I tend not to worry about that too much; they've decided[1] that being unhappy is worth the cash, and it's not a bad problem to have to be able to make that choice. > That said, anecdotally, every one of my close circle of friends made decent amount money from equity Exactly. [0] Which I have a hard time complaining against. The company probably just spent $50k of its own resources to hire you, and I don't mind that they don't want to give you any equity until you've been there for a year. [1] Then again, negotiation may be able to get similar equity terms at a new company that could presumably make them happy, and I think many people discount that fact.
- benlivengood 6y ago
  > This is unfortunately true. I do know people who aren't happy in their job (maybe not to the point of actively hating it), but stick around because of their golden handcuffs. For anyone "stuck" in this situation, recruiters from the other FAANGs you don't currently work at will try to match unvested shares in their offer. It always pays to interview once a year or so to see what the current offers are like, and it's fun to try out the other microkitchens. Well, until 2020 I guess.
hef19898 6y ago
Say what you want about Amazon, but at least they offset the fact that their RSUs vest somewhere between year 3 and 5 with stock price based (or whatever they estimate the stock price will be for next years) sign cash bonuses. Pretty fair solution, if you aks me.
deleted 6y ago
[deleted]

by harikb 6y ago

dhosek 6y ago

I have never had a stock option that was worth as much as a penny in the course of my career. In one case, a “can't lose” employee stock purchase program (where you put aside money for purchase and at the end of the year you would get stock bought at the lower of the price at the beginning and end of the purchase period with a 10% discount on top of that) ended up being a loss because the stock dropped 50% between the purchase of shares and delivery of the shares. The company was eventually bought out by 3M and I got a hundred bucks or so out of my initial investment (which was, thankfully only a thousand or two, if I recall correctly).

laurent92 6y ago
A company sold for 3 million is... I mean, in average, I see that the worth is about 1m$ per employee. If you sold for less, your stock performed poorly compared to others. Maybe the product or the engineering was great, but on the wrong market or never met its window. Business is difficult. The question is, would you have had excellent returns if the company had been worth $1m per employee?
- Cd00d 6y ago
  I think OP was saying the company 3M bought the startup. Not that the startup was sold for $3mm.
- saalweachter 6y ago
  In addition to the $3m/3M confusion, don't forget preferential liquidation. If you own 10% of a company and it sells for 2x the invested value, you might get < 5% of the sale price yourself once the investors are taken care of.

CydeWeys 6y ago

> The thing most people forget about options & RSU is that one is taking away a big chunk of the TC and delay it to a future year. That's not my experience. My TC is the amount I'll actually make this year (and have made in previous years), which includes my salary, bonus, and the value of the RSUs at vesting, which I auto-sell. I'm not "delaying" anything; I'm making great money right now. Unvested shares only matter to the extent that your future income might over/underperform current predictions to some extent. I definitely don't consider them "mine" yet in any way; they're simply a leading indicator of my estimated future TC at this company if I continue to stay employed here. Options, yes, are a different matter, but RSUs in big companies are almost as good as cash (and when the market is going up, as it has been this past decade, they're better than cash).

AnHonestComment 6y ago
I think the point is HR counts your options 1 year in as part of year 1 comp, which it obviously isn’t.
rattray 6y ago
The comment you're replying to is talking about RSU's in startups (illiquid) not public companies.

FartyMcFarter 6y ago

> The thing most people forget about options & RSU These two are very different things and they shouldn't be conflated. If you have FAANG RSUs vesting every few months or every year, you can convert them to cold hard cash on a regular basis. Options in a startup, or a company that isn't traded publicly are a different animal.

walshemj 6y ago
Very much so I (UK) have made some nice tax free returns on FTSE 100 companies share saves. Pity we didn't get an exit back in 2000 when I had 0.5% of Poptel (everyone was a dollar millionaire at one point). At the moment I have EMI shares in my current employer which vest on change of control

ptmcc 6y ago

Let's be careful here and not conflate options and RSUs, especially comparing between startups and public companies. Options in a startup are extremely likely to be worth nothing, ever. Not only does the company need some sort of liquidity or exit event, but the valuation then also has to be higher than the strike price on your options. And options usually have punishing exercise-or-lose-them requirements if you leave the company before a liquidity event. RSUs, once they vest, are yours without having to exercise them. If it's a public company you can turn around and sell them on the open market immediately if you desire and get cash for them. If the company's stock declines, your RSUs are still worth something since the "basis" is $0. If you leave the company, your vested RSUs are still yours. Yes 1-year cliffs for vesting are common and do defer compensation, but 1 year is not a long time at all to be at a company especially a large public company. After the first year the regular vesting cadence sets in and it's just a slightly more complicated form of cash, with market risk. Over the past few years that market risk has hugely benefitted most tech companies and RSU recipients. In 2020 my RSU comp was more than 50% of my total comp, basically doubling my (already high) base salary. ESPP further compounded that.

dilyevsky 6y ago
It’s still possible to lose money on rsus if the company value plummets bc they are taxed on liquidity event (assuming double trigger vest)
- rblatz 6y ago
  You can also elect to be taxed at the time of the grant via an 83b election.
reissbaker 6y ago
RSUs are trickier than that if you work at a non-public company (e.g. a startup). For example, they actually do typically expire if the company doesn't have a liquidity event within a certain timeframe -- and unlike options, if the expiration date comes up you have no recourse; with an option, you can at least exercise it, at which point it becomes common stock and you own it outright. As a personal example, I previously worked at Airbnb and had a mixture of options and RSUs. Some of my RSUs were only months away from their expiration date when the company went public; if anything had delayed the IPO much longer, they would have disappeared. With the options, I could have bought them and prevented them from disappearing even had the company not gone public. As a result, leading up to the IPO I was moderately worried about my RSUs, but not particularly worried about my options. FWIW, you're probably thinking about ISOs ("incentive stock options") when you refer to the "punishing exercise-or-lose-them requirements;" companies can also offer NQSOs ("non-qualified stock options"), which are less tax-advantaged but can offer long exercise timeframes even after you leave the company. A lot of the "unicorn" startups, including Airbnb, allowed ISO holders to convert to NQSOs for that reason. Options vs RSUs is a tricky subject and the ideal choice varies based on circumstance.

xapata 6y ago

> my close circle of friends That's extreme selection bias. One of the major ways startups recruit is via friends.

kelnos 6y ago

I don't think that tracks with reality. If my company suddenly decided to do away with equity comp, they would not replace all the potential earnings with base salary. Base salary would be higher, sure, but still much lower than the salary+equity package. I think more companies now have a policy where your RSUs vest every quarter, and there's no cliff (except for possibly the first new-hire grant[0]). So yes, it's delayed, but in practical terms you get your first vest within 3 months of getting the grant. (And if your company doesn't do refresh grants periodically, and equity is important to you, you should find another company.) > Even when you hate your job, you will be hesitant to leave the company because of FOMO and sunk cost fallacy This is unfortunately true. I do know people who aren't happy in their job (maybe not to the point of actively hating it), but stick around because of their golden handcuffs. I tend not to worry about that too much; they've decided[1] that being unhappy is worth the cash, and it's not a bad problem to have to be able to make that choice. > That said, anecdotally, every one of my close circle of friends made decent amount money from equity Exactly. [0] Which I have a hard time complaining against. The company probably just spent $50k of its own resources to hire you, and I don't mind that they don't want to give you any equity until you've been there for a year. [1] Then again, negotiation may be able to get similar equity terms at a new company that could presumably make them happy, and I think many people discount that fact.

benlivengood 6y ago
> This is unfortunately true. I do know people who aren't happy in their job (maybe not to the point of actively hating it), but stick around because of their golden handcuffs. For anyone "stuck" in this situation, recruiters from the other FAANGs you don't currently work at will try to match unvested shares in their offer. It always pays to interview once a year or so to see what the current offers are like, and it's fun to try out the other microkitchens. Well, until 2020 I guess.

hef19898 6y ago

Say what you want about Amazon, but at least they offset the fact that their RSUs vest somewhere between year 3 and 5 with stock price based (or whatever they estimate the stock price will be for next years) sign cash bonuses. Pretty fair solution, if you aks me.

deleted 6y ago

[deleted]