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> John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus

> John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast. A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving. Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.

djrogers 5y ago
> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.
- alpha_squared 5y ago
  > As long as you are still employed by the company that granted you the options I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.
drexlspivey 5y ago
> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
- alpha_squared 5y ago
  > i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50. And lose the opportunity at longer-term gains for the ability to afford the short-term cost. They're really not equivalent at all. I know they're billed that way, but there are very real reasons startups forgo IPO for so long and remain on the options track in the meantime. Startups can offer stocks and often choose not to.
pdonis 5y ago
> A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small. To make it bigger, John Doe needs to stop being a fork lift driver and move to some other position with more leverage. And a person who really does have the ability to "improve efficiency and innovate" enough to make investors notice is probably better off quitting their current job and starting a startup. > stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. My experience is that virtually all employees of large corporations who get stock options exercise them for direct cash, meaning they never actually own the stock; they "buy" it and then "sell" it immediately and take the cash (in practice whatever financial institution is running the company's stock option program does all this automatically and just sends the employee a check and a 1099 form for when they file their taxes). So virtually no employees actually take the opportunity to invest in the company. They just take the additional immediate income.
- po8crg 5y ago
  >But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small Depends on whether you count sharing his "this is a better way to use a fork-lift" around the company as best-practice as being due to his innovation or due to the manager who made it best practice. If you count that as his innovation, then it isn't small if there are a lot of other people doing his job. If Amazon could use fork-lifts in their warehouses 10% more efficiently, they'd save an enormous amount of money.
deleted 5y ago
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jjav 5y ago
> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. As a technicality that's true, but irrelevant in practice. Employees receiving options are nearly always going to do a same day sale where the option is excercised and immediately sold and you get the difference. No need to put any money in.

djrogers 5y ago

> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.

alpha_squared 5y ago
> As long as you are still employed by the company that granted you the options I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.

drexlspivey 5y ago

> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.

alpha_squared 5y ago
> i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50. And lose the opportunity at longer-term gains for the ability to afford the short-term cost. They're really not equivalent at all. I know they're billed that way, but there are very real reasons startups forgo IPO for so long and remain on the options track in the meantime. Startups can offer stocks and often choose not to.

pdonis 5y ago

> A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small. To make it bigger, John Doe needs to stop being a fork lift driver and move to some other position with more leverage. And a person who really does have the ability to "improve efficiency and innovate" enough to make investors notice is probably better off quitting their current job and starting a startup. > stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. My experience is that virtually all employees of large corporations who get stock options exercise them for direct cash, meaning they never actually own the stock; they "buy" it and then "sell" it immediately and take the cash (in practice whatever financial institution is running the company's stock option program does all this automatically and just sends the employee a check and a 1099 form for when they file their taxes). So virtually no employees actually take the opportunity to invest in the company. They just take the additional immediate income.

po8crg 5y ago
>But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small Depends on whether you count sharing his "this is a better way to use a fork-lift" around the company as best-practice as being due to his innovation or due to the manager who made it best practice. If you count that as his innovation, then it isn't small if there are a lot of other people doing his job. If Amazon could use fork-lifts in their warehouses 10% more efficiently, they'd save an enormous amount of money.

deleted 5y ago

[deleted]

jjav 5y ago

> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. As a technicality that's true, but irrelevant in practice. Employees receiving options are nearly always going to do a same day sale where the option is excercised and immediately sold and you get the difference. No need to put any money in.