5 ms·

I think the overall sentiment is right for an early stage company: you don’t want any employees (including the founders!), worrying about covering their expense

by boulos 6y ago

I think the overall sentiment is right for an early stage company: you don’t want any employees (including the founders!), worrying about covering their expenses. Personally, however, I would be more fluid than “constant dollars”. Some people need more cash, and others need less. There are definitely people who would say “I basically don’t want any cash, just get me health insurance and more lottery tickets” while others would say “Look, I would love to do this, but my family needs take home pay above this level”. Letting employees trade off equity versus cash comp at their discretion via a formula seems fair to me. Anyone who reduces their salary is effectively reducing the amount of money needed for fundraising or time to needing funding (and vice versa, for more cash). For that reason, the trade off is also non-linear for the company: early dollars are worth a lot more than later dollars (though the price per share sort of reflects this). Said another way: if you had a $175k baseline salary, but let all employees also exchange $$s-for-shares at the current valuation up to some limit, you should probably do it! (Large company ESPPs are sort of this). Doing this exchange ahead of time is just more tax efficient than “first we pay you cash, then you buy shares from the company”.

nbclark 6y ago
Agree with you on this. We do that at my company Divvy. Each prospective hire is given 3 different options (varying levels of cash / equity). The "implied" value of all three at the current valuation is the same, but as you mention some people prefer more equity upside and some prefer more cash in hand.
- SkyPuncher 6y ago
  Wow. That's an absolutely fantastic way to do this.
- boulos 6y ago
  Awesome! Any lessons learned? (The main one I’ve seen and worried about is sophistication of employees with their equity. Options are confusing! But that’s true whether it’s a single offer or multiple perspectives).
  - nbclark 6y ago
    In general, it seems to be appreciated. We initially set it up this way to help take some of the stress out of negotiation (as that favors certain people over others). A few learnings off the top of my mind: 1. Regardless of the structure, the offer needs to be competitive. This wouldn't really help with lowballing offers. 2. Across the ~30 offers I've given out, I don't think that either of the 3 variants is more common. I suppose that indicates that different candidates are indeed optimizing for different situations. 3. Our hiring has intentionally skewed more senior and I think the variants of offers has helped create more family friendly offers. Regarding options, I tend to make sure to offer to spend a good bit of time laying out the details of how they work (strike price, preferred value, vesting, cliffs, early exercise, etc.). They are indeed confusing and I find that people typically either overvalue the value of the options today, or undervalue the potential upside.
    - boulos 6y ago
      How much do you space out the three variants? Have you gone beyond the endpoints? (But followed the same curve)
      - nbclark 6y ago
        Depends on the role/level, but ~10-15k annually between each tier. I have gone beyond the endpoints (within reason) by just linearly extrapolating, though that tends to be pretty uncommon.
- tmp538394722 6y ago
  Interesting. I wonder how this plays out in practice - what choices people tend to make. I wonder if there are politics for people who take more cash and less stock - does mgmt assume it implies less good will, since the employee is literally “less invested” in the outcome?
  - nbclark 6y ago
    Can only speak to my experience, but I am completely indifferent to their choice. Either of the 3 tend to be relatively substantial in equity, so everyone is invested in some regard. I also believe that in the long run, unvested options aren't the best retention strategy and that a challenging and rewarding work environment coupled with competitive compensation is the way to build an invested team.
- RhysU 6y ago
  But why not give everyone cash consistently and then allow them to buy equity as they desire, when they desire, by reinvesting in the business at the current prevailing rate? As even Homer Simpson figured out "Money can be exchanged for goods and services."
  - lostinquebec 6y ago
    Isn't there a tax implication? Tax is one reason part why people choose non-monetary remuneration. I'm not American, but my guess is in all jurisdictions that tax would vary based on the type of non-monetary remuneration.
    - nbclark 6y ago
      I guess it would depend how you structure the purchases. If you allow for the purchasing of a common share at the 409 valuation, you wouldn't have a tax hit until you sell it. You would be taxed on the salary used to purchase the share, however.
    - lotsofpulp 6y ago
      I'm not aware of any tax advantages of equity compensation in the US versus cash compensation. If anything, it could be a liability in the case that it's not actively traded, or if you trigger AMT and aren't able to sell the stock to pay the taxes. The type of compensation that comes with tax benefits is things such as subsidized health insurance, 401k retirement savings, commuter benefits, dependent care expenses, tuition, etc. That type of stuff is basically non taxed income.
      - closeparen 6y ago
        If you get lucky and your options both appreciate and become liquid, this windfall is taxed at long term capital gains rates.
        sokoloff 6y ago
        That depends on the facts and circumstances. If they become liquid and valuable before you exercise them, you’re taxed as wages or short-term capital gains rates on those gains.
- mattpratt 6y ago
  This 3-tier presentation is used at a couple places and would caution it as a way to anchor you on salary and equity. A lot of hires will negotiate the “salary high” and “equity high” option, saying they want no sacrifices, get both and join thinking they got a great deal.
rectang 6y ago
> equity versus cash comp For me, the main tradeoff is not compensation, but time. I'm prepared to trade away compensation for fewer hours. But if I want to work a maximum of 32 hours instead of 40, then I essentially have to rule out most of the jobs I would otherwise apply for. It's not a criteria where most employers offer flexibility.
- grecy 6y ago
  It's certainly becoming more popular every year. I have friends that do a 50/50 job share, other friends that simply take an extra 2 months unpaid leave every year, and quite a few friends who only work 4 days a week (and get 4/5th pay). I pitched my boss that I would get all my work done AND it would be good for him because it would help him meet budget AND build resiliency in the team (They have to deal with outages without me - so I created more documentation around that). After lots and lots of back and forth my boss eventually accepted, and I never worked more than 4 days a week again, and most weeks it was only 3 days. Keep pushing for it, and find a company/boss who is open to the idea. Fire your current one if they're not willing to negotiate.
  - rectang 6y ago
    Solid advice! With some persistence (and a strong résumé), I was able to secure a 32-hour position a few years ago. Like most jobs, I found it through networking (a Papers We Love Meetup). But all good things come to an end and I'm looking again. The main issue is a lack of institutional support: • While there are a decent number of potential employers who would be open to 32-hour-full-time, there's not a good way to reach them. RIP 30hourjobs.com I'm afraid. • Recruiters are completely baffled by the idea that "full-time" doesn't necessarily mean 40 hours, even if the IRS determination is minimum 30/week or 130/month: https://www.irs.gov/affordable-care-act/employers/identifying-full-time-employees https://www.irs.gov/affordable-care-act/employers/identifyin... • Many companies simply don't have the HR flexibility to handle anything other than 40-hour full-time cogs. (I think this may be different in parts of Europe, where I understand there are laws that allow employees to choose to work fewer hours, so companies have to find a way to accommodate them.)
- 6y ago
dyeje 6y ago
There are companies that do this, like Brex.
buro9 6y ago
> Letting employees trade off equity versus cash comp at their discretion via a formula seems fair to me It's an incredibly unfair way to compensate. If you've come from a less privileged background you don't have family support, likely won't inherit anything, probably don't own a house. Your priorities will be to shore up some basics in the short term, like breaking a hand to mouth existence or possibly working towards a mortgage. But focusing on your needs, due to the lack of wealth in your family and history, means that you must give up hope of future wealth, foregoing the same value and benefit that those who can afford through their privilege to take... Far more share options, the lottery tickets. I find the idea so repulsive that when I was offered roles twice at Monzo I refused both purely because of this. If it isn't already an unequal workplace that is biased towards those who started out with more then this guarantees it will become that. The only people who benefit from this are those that started with the privilege of wealth... Likely the white middle class male.
- yaacov 6y ago
  I don’t quite follow... rich people and poor people have different needs, sure, but why is it bad to give people options that help meet whatever their needs are? Do you have a better suggestion?
  - buro9 6y ago
    > why is it bad to give people options that help meet whatever their needs are? Because it perpetuates and worsens inequalities. The rich are effectively paid to their value whereas as you admit the poor are paid to their needs.

by boulos 6y ago

nbclark 6y ago

Agree with you on this. We do that at my company Divvy. Each prospective hire is given 3 different options (varying levels of cash / equity). The "implied" value of all three at the current valuation is the same, but as you mention some people prefer more equity upside and some prefer more cash in hand.

SkyPuncher 6y ago
Wow. That's an absolutely fantastic way to do this.
boulos 6y ago
Awesome! Any lessons learned? (The main one I’ve seen and worried about is sophistication of employees with their equity. Options are confusing! But that’s true whether it’s a single offer or multiple perspectives).
- nbclark 6y ago
  In general, it seems to be appreciated. We initially set it up this way to help take some of the stress out of negotiation (as that favors certain people over others). A few learnings off the top of my mind: 1. Regardless of the structure, the offer needs to be competitive. This wouldn't really help with lowballing offers. 2. Across the ~30 offers I've given out, I don't think that either of the 3 variants is more common. I suppose that indicates that different candidates are indeed optimizing for different situations. 3. Our hiring has intentionally skewed more senior and I think the variants of offers has helped create more family friendly offers. Regarding options, I tend to make sure to offer to spend a good bit of time laying out the details of how they work (strike price, preferred value, vesting, cliffs, early exercise, etc.). They are indeed confusing and I find that people typically either overvalue the value of the options today, or undervalue the potential upside.
  - boulos 6y ago
    How much do you space out the three variants? Have you gone beyond the endpoints? (But followed the same curve)
    - nbclark 6y ago
      Depends on the role/level, but ~10-15k annually between each tier. I have gone beyond the endpoints (within reason) by just linearly extrapolating, though that tends to be pretty uncommon.
tmp538394722 6y ago
Interesting. I wonder how this plays out in practice - what choices people tend to make. I wonder if there are politics for people who take more cash and less stock - does mgmt assume it implies less good will, since the employee is literally “less invested” in the outcome?
- nbclark 6y ago
  Can only speak to my experience, but I am completely indifferent to their choice. Either of the 3 tend to be relatively substantial in equity, so everyone is invested in some regard. I also believe that in the long run, unvested options aren't the best retention strategy and that a challenging and rewarding work environment coupled with competitive compensation is the way to build an invested team.
RhysU 6y ago
But why not give everyone cash consistently and then allow them to buy equity as they desire, when they desire, by reinvesting in the business at the current prevailing rate? As even Homer Simpson figured out "Money can be exchanged for goods and services."
- lostinquebec 6y ago
  Isn't there a tax implication? Tax is one reason part why people choose non-monetary remuneration. I'm not American, but my guess is in all jurisdictions that tax would vary based on the type of non-monetary remuneration.
  - nbclark 6y ago
    I guess it would depend how you structure the purchases. If you allow for the purchasing of a common share at the 409 valuation, you wouldn't have a tax hit until you sell it. You would be taxed on the salary used to purchase the share, however.
  - lotsofpulp 6y ago
    I'm not aware of any tax advantages of equity compensation in the US versus cash compensation. If anything, it could be a liability in the case that it's not actively traded, or if you trigger AMT and aren't able to sell the stock to pay the taxes. The type of compensation that comes with tax benefits is things such as subsidized health insurance, 401k retirement savings, commuter benefits, dependent care expenses, tuition, etc. That type of stuff is basically non taxed income.
    - closeparen 6y ago
      If you get lucky and your options both appreciate and become liquid, this windfall is taxed at long term capital gains rates.
      - sokoloff 6y ago
        That depends on the facts and circumstances. If they become liquid and valuable before you exercise them, you’re taxed as wages or short-term capital gains rates on those gains.
mattpratt 6y ago
This 3-tier presentation is used at a couple places and would caution it as a way to anchor you on salary and equity. A lot of hires will negotiate the “salary high” and “equity high” option, saying they want no sacrifices, get both and join thinking they got a great deal.

rectang 6y ago

> equity versus cash comp For me, the main tradeoff is not compensation, but time. I'm prepared to trade away compensation for fewer hours. But if I want to work a maximum of 32 hours instead of 40, then I essentially have to rule out most of the jobs I would otherwise apply for. It's not a criteria where most employers offer flexibility.

grecy 6y ago
It's certainly becoming more popular every year. I have friends that do a 50/50 job share, other friends that simply take an extra 2 months unpaid leave every year, and quite a few friends who only work 4 days a week (and get 4/5th pay). I pitched my boss that I would get all my work done AND it would be good for him because it would help him meet budget AND build resiliency in the team (They have to deal with outages without me - so I created more documentation around that). After lots and lots of back and forth my boss eventually accepted, and I never worked more than 4 days a week again, and most weeks it was only 3 days. Keep pushing for it, and find a company/boss who is open to the idea. Fire your current one if they're not willing to negotiate.
- rectang 6y ago
  Solid advice! With some persistence (and a strong résumé), I was able to secure a 32-hour position a few years ago. Like most jobs, I found it through networking (a Papers We Love Meetup). But all good things come to an end and I'm looking again. The main issue is a lack of institutional support: • While there are a decent number of potential employers who would be open to 32-hour-full-time, there's not a good way to reach them. RIP 30hourjobs.com I'm afraid. • Recruiters are completely baffled by the idea that "full-time" doesn't necessarily mean 40 hours, even if the IRS determination is minimum 30/week or 130/month: https://www.irs.gov/affordable-care-act/employers/identifying-full-time-employees https://www.irs.gov/affordable-care-act/employers/identifyin... • Many companies simply don't have the HR flexibility to handle anything other than 40-hour full-time cogs. (I think this may be different in parts of Europe, where I understand there are laws that allow employees to choose to work fewer hours, so companies have to find a way to accommodate them.)
6y ago

dyeje 6y ago

There are companies that do this, like Brex.

buro9 6y ago

> Letting employees trade off equity versus cash comp at their discretion via a formula seems fair to me It's an incredibly unfair way to compensate. If you've come from a less privileged background you don't have family support, likely won't inherit anything, probably don't own a house. Your priorities will be to shore up some basics in the short term, like breaking a hand to mouth existence or possibly working towards a mortgage. But focusing on your needs, due to the lack of wealth in your family and history, means that you must give up hope of future wealth, foregoing the same value and benefit that those who can afford through their privilege to take... Far more share options, the lottery tickets. I find the idea so repulsive that when I was offered roles twice at Monzo I refused both purely because of this. If it isn't already an unequal workplace that is biased towards those who started out with more then this guarantees it will become that. The only people who benefit from this are those that started with the privilege of wealth... Likely the white middle class male.

yaacov 6y ago
I don’t quite follow... rich people and poor people have different needs, sure, but why is it bad to give people options that help meet whatever their needs are? Do you have a better suggestion?
- buro9 6y ago
  > why is it bad to give people options that help meet whatever their needs are? Because it perpetuates and worsens inequalities. The rich are effectively paid to their value whereas as you admit the poor are paid to their needs.