7 ms·

Skype options turn out to be worthless

343 points by TWAndrews 15y ago

Am I the only one who finds this pretty shocking?

unreal37 15y ago
I understand that Skype is a private company, and so that when they grant options it will have some odd terms that employees of public companies don't have. They shouldn't use the terms "vested" and "unvested" then. His options were vested, yet were callable. That's not what vested means. They should call all options unvested until the company goes IPO.
jsherry 15y ago
"It turns out the investor group...had secured a so-called repurchase right that gave them authority to buy back the shares at the grant price." If this is true, it sounds like somebody didn't properly perform their due diligence before signing their options agreement. Although it's never right for a company or investor to exercise this buy back when it comes to an honest, hard-working employee, the onus really falls on the employee ensuring that this clause never sees the light of day in their contract in the first place. Perhaps in the event of "cause", one could make a case, but certainly under no other condition. EDIT: It's an unethical clause to begin with - absolutely agree with the comments. Just saying that you can't count on anyone besides yourself to act on behalf of your own best interests.
- earl 15y ago
  I'm torn between agreeing that employees should carefully read their options agreement and believing that there are some things in life that are wrong with no grey area and stealing shares people have earned is wrong.
  - pavel_lishin 15y ago
    The two are not mutually exclusive. Leaving your car unlocked in a bad neighborhood is irresponsible, but someone stealing it in the night is still unquestionably wrong.
    - wccrawford 15y ago
      True, but where would a court of law fall on the situation? When the unlocked car, it clearly falls on the side of the car owner. But this? It isn't so clear.
  - jsherry 15y ago
    Clarification: it's an unethical clause to begin with - absolutely agree. Just saying that you can't count on anyone besides yourself to act on behalf of your own best interests.
    - gnosis 15y ago
      Well, you probably can't count on employers who stand to profit by your loss. But you could, for instance, join together with other employees whose interests are more aligned with yours and join a union. That is if there were any unions in the IT field.. and if they weren't nearly universally despised due to the omnipresent anti-union propaganda in the US.
- raganwald 15y ago
  In theory, everybody is responsible for reading everything they sign, regardless of who they are and who they are doing business with. In practice, certain clauses in certain contracts have been deemed unenforceable because it's "unreasonable" for one of the parties to have performed enough due diligence to give informed consent when they signed the agreement. (And often it's thought that the other party knew this. This comes into play when the party drafting the agreement is the powerful one with the lawyers.) If this type of agreement has been standard in the Valley for decades, it would be unreasonable for Lee to expect anything else. If it's a new kind of screw-job, we may have to see how courts handle the inevitable disputes. They might tell him "tough luck." Then again, they might decide that it is unreasonable for him to expect the repurchase of his options, and that the company knew it was unreasonable--or even went out of their way to make it difficult for him to appreciate the consequences of the contract he signed. I have no idea how it will work out for him, but I do want to point out that when there's a massive imbalance of power and access to legal advice, the amount of due diligence expected of the weaker party is sometimes relaxed.
- salsakran 15y ago
  That's all well and good, but there are nontrivial costs to creating a system where you need to have a lawyer vet every line of every contract you sign. There's been a general consensus about what a "market" employee agreement contains, which lets people make decisions in a relatively uniform way between offers. If it becomes known that any company associated with a certain firm has wacko contracts and that you'll need to pay 20k in legal time to even evaluate their offer compared to others, it becomes an easy no all around.
  - chollida1 15y ago
    > There's been a general consensus about what a "market" employee agreement contains, which lets people make decisions in a relatively uniform way between offers. Is there? What counts as general consensus? That's meant to be a serious comment. I've seen contracts that have vested stock grants expire after 2 years and some where vested grants stock never expire. it seems to me that there isn't really any such thing as a general consensus when it comes to stock options.
    - salsakran 15y ago
      I'd say that 4 year vesting with a 1 year cliff is pretty much standard across the valley.
      - chollida1 15y ago
        I've never had such a contract but i'll take your word for it. However, I was referring to when your options expire, which seems more appropriate to the story:)
        salsakran 15y ago
        It's not a question of them expiring. It's that the company issuing them had an opportunity to rebuy them at cost. I.e. your vesting schedule is completely meaningless. It's one of those situations where someone uses a word that has a specific set of associations (i.e. "I vest 25%, that means I get them right?") and then attaches terms that make it mean something else entirely ("yes, you get them, but I can take them away at my option without compensating you").
- jfruh 15y ago
  Felix Salmon makes a good case that Skype's stock agreement was deliberately obfuscative: http://blogs.reuters.com/felix-salmon/2011/06/24/upgrading-skype-and-silver-lake-to-evil/ http://blogs.reuters.com/felix-salmon/2011/06/24/upgrading-s... Basically, Skype's claim is that the point of this clause is to retain employees -- you don't get cash in your vested stock unless you still work for the company. But as Salmon points out, none of the employees actually realized this -- the clauses are bafflingly worded, and refer to external documents, to the extent that you'd need a lawyer to figure them out -- so it doesn't make any kind of sense as a retention tool. Add in the fact that this policy is pretty radically different from standard tech industry practice, where if you're vested you're vested, and it really seems like it's just a way to screw employees.
  - raganwald 15y ago
    Clearly nonsense. When I worked for KL Group, a unique incentive program was put into place to allow employees to participate in any "liquidity event" that might take place. It was explained to everyone, clearly, that you only benefitted if you were an employee at the time, and that when you leave the company for any reason, the founders would buy you out according to a specific, written formula. There was absolutely no ambiguity about the mechanism.
    - bxg 15y ago
      There's nothing wrong with such an agreement (as you describe KL), and though this type of explicit inventive plan is not so common in Silicon Valley, it is surely valid, ethical, and and useful wherever it arises. (To be more complete, in Silicon Valley there is usually such an incentive plan concerning liquidity events, but it's tacit and is anyway orthogonal to stock/option grants.) But you say it explained to everyone at KL "clearly" what was going on. Don't you see that this is one complaint here is that not only wasn't this done, but perhaps the very opposite? And were you given detailed instructions on how (and how quickly) you must exercise vested options if you quit, even though this had no meaning at all whatsoever? If the answer is no, please imagine it was yes. Would you have still been totally confident that you understood the mechanism (wouldn't you have wondered: why are they explaining something that is in practice irrelevant?)
- deleted 15y ago
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ianterrell 15y ago
While I understand that legalese is necessary since English is ambiguous in its best moments, the only reasons I see not to include a "plain English" version of a contract are A) to save on lawyer hours, or B) to screw someone over. For most contracts I suspect that the overhead on a plain English version would be very small, as the lawyers' understanding of the topics is necessarily deep to formulate the contract (or they're just shitty lawyers, another topic). Plain English versions of contracts, with their plain English meanings of clauses, should be included in any contract between two parties of vastly different bargaining power, i.e. a corporation with loads of legal resources and a non-millionaire potential employee. Update w.r.t. comments—I understand the points you're making, but I don't think it invalidates the argument. I'm racking my brain to find the examples I've seen, but there do exist in the wild "plain English" versions of contracts that are not binding (and they specify that) but instead contain comprehensible summaries of the salient parts.
- salsakran 15y ago
  The problem with that is that the legalese version of the contract is supposed to be definitive. If they also provide a plain english and one of the terms when exercised invalidates a "plain english" provision, how is that supposed to be interpreted? In this case it was one of those details that mattered greatly. A plain english version would have just said "you get X options you can exercise on this vesting schedule, subject to terms(*)"
  - blinks 15y ago
    That doesn't seem to fix the underlying problem -- they understood/read the plain english version, just not the terms. Honestly (and I'm guilty of this as much as anyone), I doubt they even read the terms. Here we have this huge thread about contract language being hard to understand, but if one doesn't take the time to read through, understand, and _remember_ all the terms of the agreement, how can one act on that information? Complex, perhaps, but it's a complex subject.
    - kenjackson 15y ago
wccrawford 15y ago
"that you will receive no value" is hardly opaque, even if the rest is. Any contract that said that would have me pouring over it with a fine-tooth comb. Or more likely, just rejected it and finding work elsewhere. I wonder if that contract is subject to legal action, though? Seems to me that was a deliberate attempt to screw him over. He shouldn't have signed it, but they shouldn't have written it, either. I'm now serious considering canceling my Skype subscriptions and finding alternatives, despite how useful they are to me a the moment.
- pbreit 15y ago
  Yeah, I suspect they would have a decent chance at collecting some sort of payout with legal action even though they did sign contracts. It would be common sense to expect notification when such a substantial change was added to an original contract.
- akamaka 15y ago
  The "receive no value" language is not in the original contract -- that's from a June 13, 2011 letter from one of Skype's attorney's.
paradox95 15y ago
So the people who lost out here have any recourse? I hope they are talking to lawyers. I'm not typically the type of person to sue over everything but this is screaming for a lawsuit.
dctoedt 15y ago
1. By no means do I want to defend Skype here, but the prose in the linked documents isn't especially incomprehensible, at least not for documents of this type. I teach contract drafting to third-year law students. It's hard work to take a complex if-then-else concept and render it in plain English.[a] And here's the rub: Few clients want to pay lawyers to spend extra time on readability -- "good enough" (whatever that means) is the goal. 2. [EDITED TO ADD THIS:] It's not unusual for a private company's employee stock plan to include a "call" option that gives the employer the right to repurchase employee-owned shares when the employee leaves the company. That makes sense when you think about it -- if you're a private company, you don't want a lot of random ex-employees owning dribs and drabs of your shares, especially if you're worried about the 500-shareholder limit (under current law). On the other hand, for a company with an upcoming exit to buy back the shares at the employee's cost, instead of at a good-faith estimate of the stock's then-current value -- well, that does indeed seem unusual. (EDIT: Some documents like this provide that, IF: The company wants to do its buy-back EITHER: (i) after an exit is announced, OR: (ii) if an exit is announced within 30 days or so after the employee's departure; THEN: The employee is entitled to the exit pricing for the buy-back.) 3. Again, not to defend Skype, but conceivably they might not have had a choice about the buy-back price, at least not without jeopardizing some kind of favorable income-tax treatment. If I had to guess, I'd venture that, X number of years ago, some overzealous junior lawyer decided to draft the relevant documents so as to put the company in the strongest position s/he could. Now that zealousness may be tying their hands. I stress that I'm speculating here. * * * [a] If you have occasion to write a complex if-then-else sentence, try using all-caps and punctuation like this: IF: It rains at least one inch today but not more than two inches; AND: It doesn't rain tomorrow; THEN: You will turn on the sprinkler system tomorrow; AND: You will not do so the day after.
- ianterrell 15y ago
  I'm not sure its being totally readable to a law professor who teaches contracts helps Joe Engineer.
  - dctoedt 15y ago
    @ianterrell, consider how often you've had to struggle to make sense of someone else's source code -- it's much the same with contract language. Seldom do lawyers go back and refactor their contract language for improved readability.
kenjackson 15y ago
A big part of business is who you're in bed with. MS should cancel the Skype deal, if at all possible. That would be one sign that they've turned a corner. I will never fork over a dime for any Skype service. This, while legal, is clearly unethical on a broad scale. And its the worst kind of unethical. Apple and MS play hardball with competitors -- but you don't do that with your employees.
- powertower 15y ago
  What does this have to do with Microsoft?
  - JoeAltmaier 15y ago
    If you lie down with dogs, you get up with fleas.
    - joenathan 15y ago
      and if you rock'em sock'em you'll turn into a robot!
- MrMan 15y ago
  it doesn't matter. there will be no hue and cry about the "retention" issues surrounding this merger, and most of the valuable Skype people will be gone from MSFT as soon as they can anyway. In >1 year, there will be little left of the Skype org chart but the lower part of the pyramid. All the valuable people that for whatever reason are still there at this late date in the company's history will go on to other opportunities.
protomyth 15y ago
in the other thread on this http://news.ycombinator.com/item?id=2691455 http://news.ycombinator.com/item?id=2691455 the article had the following line "the company's decision to repurchase would also cause a tax hit to him" - anyone know how that works?
- deleted 15y ago
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- yeeguy 15y ago
  I'm the guy in the article. So, I got a letter from the Skype HR folks indicating that if I were to persist on the path of exercising my options, then they would: (1) exercise their right to repurchase the shares at grant-price, leaving me with net zero gain; (2) demand tax withholding on the shares, valued at fair market value (substantially higher than grant price, given that the MSFT deal had already been announced) The sum effect of 1 and 2 being net-zero gain on the shares, minus a large chunk of cash out of pocket tied up in a tax withholding account. Terrible.
  - lawnchair_larry 15y ago
    It's almost like they want you to know that they are raising the price of admission to even challenge them to a fight. Pure evil.
  - protomyth 15y ago
    My sympathy. I am thinking the tax, as described by them, is not how the IRS would view it. I would imagine that you probably want all this behind you, but I would think a lawyer mightbhave a different interpretation. You would still net zero, but the tax things seems way out of left field.
  - aphexairlines 15y ago
    Did you get the feeling before from your time there that they were this kind of people?
  - r00fus 15y ago
va_coder 15y ago
What's to stop a disgruntled software dev who gets treated this way from secretly using his knowledge to support an open source competitor? It doesn't have to be anything close to a line by line copy, just subtle hints here are there about better, but generic, ways of doing things.
- eli 15y ago
  The threat of being sued, regardless of whether the lawsuit would be successful
ghshephard 15y ago
Absolutely zero surprise on my side. VCs, and acquiring companies are always looking to maximize their return, as legally as possible during an M&A deal, even (sometimes particularly) if that means screwing over employees who are no longer with the company. I actually like the honesty of this quote: "Silver Lake declined to comment. When asked about Lee’s situation, Skype spokesman Brian O’Shaughnessy said, “You’ve got to be in it to win it. The company chose to include that clause in the contract in order to retain the best and the brightest people to build great products. This individual chose to leave, therefore he doesn’t get that benefit.”" Most people will look at it and say "What an Asswad" - but at least he's not being a hypocrite. That's precisely what everyone in the M&A team is _thinking_ they just aren't _saying_ it. This is another take on what Oracle did when they bought Oblix (I had just left Oblix in 1999) Oracle gave MegaBonuses to all the existing employees and executives, two of the founders, and paid absolutely nothing for the common shares. The acquisition price was still $100Million plus, but there was only enough money to cover the preferred options + liquidation preferences in the "on the record" purchase prices. Effectively, they wiped out all the employees who were common shareholders, but no longer with the company (or were part of the 15-20 out of 100 who were laid off during the acquisition) while taking care of the VCs and the acquired employees. (As a side bonus, they called the money they gave to the acquired employees "Retention Bonuses" - which resulted in the top people having to hang around for another year) Lesson to be learned: When you leave a company, and it is still private - if they are Sold, instead of going public, there are probably any number of ways that you will get wiped out if you are no longer with them - possible exception if you are a founder with a significant percentage of the company, and you might be able to raise a stink for minority shareholder rights. Then you'll get a "consulting bonus" to shut you up. This story is more common than not.
- johnrob 15y ago
  About a year ago Fred Wilson said straight up that common stock is unreliable and not suitable for investors. Since employees get common stock, the only point of leverage they have is their commitment to future employment. Thus buying options when leaving can be a risky proposition - not only is there risk of failure, there is the risk that the company's value gets laundered into retention packages.
- 15y ago
deleted 15y ago
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nestlequ1k 15y ago
Anyone interested in joining GoDaddy after the SilverLake deal should have their head examined.
alain94040 15y ago
Amazing, this is the first time I see a stock options agreement where the employee is forced to enter into a partnership for his vested shares. I agree with the blog's title "upgrading Skype to evil". On the other hand, you should have known Skype, incorporated in an international haven, was not your regular startup. EDIT: also, the stock agreement just says "management partnership" on page 3, with no prior definition of what it might be. Later on, it gets more references, without ever being defined. A good lawyer may have a case?
brudgers 15y ago
The article leaves out some relevant context. It appears that Yee Lee was at Skype for one year one month 3/2010 - 4/2011. That entire period of time was after Silverlake had purchased Skype and more importantly after the right to repurchase vested options was in place. It is difficult to see this as private equity screwing over founders or early employees (Skype was founded in 2003 and had been valued at more than $2 billion for five years when Lee Yee came aboard). Indeed given the short tenure of many of the people involved in the story, there seems to be more smoke than fire. [Lee Yee on Linkedin: http://www.linkedin.com/in/yeeguy http://www.linkedin.com/in/yeeguy] [Business Week article correlating Linkedin profile to article: http://www.businessweek.com/magazine/content/11_27/b4235038625596.htm http://www.businessweek.com/magazine/content/11_27/b42350386...] [my comments on previous versions of story: http://news.ycombinator.com/item?id=2672786 http://news.ycombinator.com/item?id=2672786]
NonEUCitizen 15y ago
Silverlake portfolio companies: http://www.silverlake.com/partners/content.php?page=investments-current http://www.silverlake.com/partners/content.php?page=investme...
- kenjackson 15y ago
  Good luck to the Groupon employees.
NonEUCitizen 15y ago
Silverlake is not the only investor in Skype; e.g. Andreessen Horowitz is too: http://a16z.com/portfolio/ http://a16z.com/portfolio/
- alain94040 15y ago
  Good point. I'd like to hear either (Andreessen or Horowitz) speak out and say they opposed such tactics. I'll have to add Skype to my list of "rotten ethics in Silicon Valley" (http://blog.fairsoftware.net/2011/06/01/rotten-ethics-in-silicon-valley/ http://blog.fairsoftware.net/2011/06/01/rotten-ethics-in-sil...). When will the investors speak up?
madmanslitany 15y ago
I don't really have much to contribute on the story itself, but I suddenly realized that my former CS472 Artificial Intelligence project partner and friend from Cornell works for Silver Lake, which has led me down an interesting path of daydreaming now that I'm starting work with a Valley-based company in a few weeks. It would actually make for a great short story or novelette to see former classmates on opposite sides of a deal like this. A lot of very smart engineers go straight into jobs in technology sector investment banking, private equity, etc. soon after college that could eventually put them on a collision course with erstwhile friends.
johngalt 15y ago
This is why cash is king and "equity" is worthless. Hey bizdev weenies out there that wonder why you can't find a technical cofounder/employee who will work for equity, here is your answer.
lanstein 15y ago
I'm sure I'm not the only one who reviewed their stock grants... (good news :))
ajays 15y ago
What is Microsoft doing about this? As the acquirer, they may still be able to "do the right thing" and make some of these guys whole. Sure, it may cost them a few million bucks; but can you imagine the goodwill it will generate for Microsoft? You can't buy that kind of good publicity! But will Microsoft do such a thing? I doubt it very much. (I would love to be proven wrong, of course)
- contextfree 15y ago
  If I were "Microsoft", I'd be thinking more along the lines of "if they went out of their way to sneakily screw over their employees like this, what hidden traps lie in store for us?"
johnarleyburns 15y ago
Something quite similar happened to me at FundsXpress when UBS forced the sale of the company. Even if your startup is successful, your most likely outcome is to get very little from the resulting sale. Succeeding is rare, but making significant money from success is even more rare, even if the company is profitable and makes a large return on investment for the VCs. Statistics-wise, you are better off going into consulting. Don't quit your day job.
arturadib 15y ago
I wonder how many of us are now scrambling to dig up a copy of our stock option agreement. This sets a terrible precedent. In case you didn't get it yet: READ YOUR LEGAL DOCS (sock options, IP, etc) and negotiate sketchy terms before you sign them!
joshu 15y ago
They could also have executed their options to purchase the stock...
daimyoyo 15y ago
This is yet another reason I refuse to use Skype. I won't patronize a company that treats it's employees like that.
cypherpunks 15y ago
I've seen swarms of employees get screwed in ways similar to this. It's not uncommon in Silicon Valley.

343 points by TWAndrews 15y ago

Am I the only one who finds this pretty shocking?

I understand that Skype is a private company, and so that when they grant options it will have some odd terms that employees of public companies don't have. They shouldn't use the terms "vested" and "unvested" then. His options were vested, yet were callable. That's not what vested means. They should call all options unvested until the company goes IPO.

jsherry 15y ago

"It turns out the investor group...had secured a so-called repurchase right that gave them authority to buy back the shares at the grant price." If this is true, it sounds like somebody didn't properly perform their due diligence before signing their options agreement. Although it's never right for a company or investor to exercise this buy back when it comes to an honest, hard-working employee, the onus really falls on the employee ensuring that this clause never sees the light of day in their contract in the first place. Perhaps in the event of "cause", one could make a case, but certainly under no other condition. EDIT: It's an unethical clause to begin with - absolutely agree with the comments. Just saying that you can't count on anyone besides yourself to act on behalf of your own best interests.

earl 15y ago
I'm torn between agreeing that employees should carefully read their options agreement and believing that there are some things in life that are wrong with no grey area and stealing shares people have earned is wrong.
- pavel_lishin 15y ago
  The two are not mutually exclusive. Leaving your car unlocked in a bad neighborhood is irresponsible, but someone stealing it in the night is still unquestionably wrong.
  - wccrawford 15y ago
    True, but where would a court of law fall on the situation? When the unlocked car, it clearly falls on the side of the car owner. But this? It isn't so clear.
- jsherry 15y ago
  Clarification: it's an unethical clause to begin with - absolutely agree. Just saying that you can't count on anyone besides yourself to act on behalf of your own best interests.
  - gnosis 15y ago
    Well, you probably can't count on employers who stand to profit by your loss. But you could, for instance, join together with other employees whose interests are more aligned with yours and join a union. That is if there were any unions in the IT field.. and if they weren't nearly universally despised due to the omnipresent anti-union propaganda in the US.
raganwald 15y ago
In theory, everybody is responsible for reading everything they sign, regardless of who they are and who they are doing business with. In practice, certain clauses in certain contracts have been deemed unenforceable because it's "unreasonable" for one of the parties to have performed enough due diligence to give informed consent when they signed the agreement. (And often it's thought that the other party knew this. This comes into play when the party drafting the agreement is the powerful one with the lawyers.) If this type of agreement has been standard in the Valley for decades, it would be unreasonable for Lee to expect anything else. If it's a new kind of screw-job, we may have to see how courts handle the inevitable disputes. They might tell him "tough luck." Then again, they might decide that it is unreasonable for him to expect the repurchase of his options, and that the company knew it was unreasonable--or even went out of their way to make it difficult for him to appreciate the consequences of the contract he signed. I have no idea how it will work out for him, but I do want to point out that when there's a massive imbalance of power and access to legal advice, the amount of due diligence expected of the weaker party is sometimes relaxed.
salsakran 15y ago
That's all well and good, but there are nontrivial costs to creating a system where you need to have a lawyer vet every line of every contract you sign. There's been a general consensus about what a "market" employee agreement contains, which lets people make decisions in a relatively uniform way between offers. If it becomes known that any company associated with a certain firm has wacko contracts and that you'll need to pay 20k in legal time to even evaluate their offer compared to others, it becomes an easy no all around.
- chollida1 15y ago
  > There's been a general consensus about what a "market" employee agreement contains, which lets people make decisions in a relatively uniform way between offers. Is there? What counts as general consensus? That's meant to be a serious comment. I've seen contracts that have vested stock grants expire after 2 years and some where vested grants stock never expire. it seems to me that there isn't really any such thing as a general consensus when it comes to stock options.
  - salsakran 15y ago
    I'd say that 4 year vesting with a 1 year cliff is pretty much standard across the valley.
    - chollida1 15y ago
      I've never had such a contract but i'll take your word for it. However, I was referring to when your options expire, which seems more appropriate to the story:)
      - salsakran 15y ago
        It's not a question of them expiring. It's that the company issuing them had an opportunity to rebuy them at cost. I.e. your vesting schedule is completely meaningless. It's one of those situations where someone uses a word that has a specific set of associations (i.e. "I vest 25%, that means I get them right?") and then attaches terms that make it mean something else entirely ("yes, you get them, but I can take them away at my option without compensating you").
jfruh 15y ago
Felix Salmon makes a good case that Skype's stock agreement was deliberately obfuscative: http://blogs.reuters.com/felix-salmon/2011/06/24/upgrading-skype-and-silver-lake-to-evil/ http://blogs.reuters.com/felix-salmon/2011/06/24/upgrading-s... Basically, Skype's claim is that the point of this clause is to retain employees -- you don't get cash in your vested stock unless you still work for the company. But as Salmon points out, none of the employees actually realized this -- the clauses are bafflingly worded, and refer to external documents, to the extent that you'd need a lawyer to figure them out -- so it doesn't make any kind of sense as a retention tool. Add in the fact that this policy is pretty radically different from standard tech industry practice, where if you're vested you're vested, and it really seems like it's just a way to screw employees.
- raganwald 15y ago
  Clearly nonsense. When I worked for KL Group, a unique incentive program was put into place to allow employees to participate in any "liquidity event" that might take place. It was explained to everyone, clearly, that you only benefitted if you were an employee at the time, and that when you leave the company for any reason, the founders would buy you out according to a specific, written formula. There was absolutely no ambiguity about the mechanism.
  - bxg 15y ago
    There's nothing wrong with such an agreement (as you describe KL), and though this type of explicit inventive plan is not so common in Silicon Valley, it is surely valid, ethical, and and useful wherever it arises. (To be more complete, in Silicon Valley there is usually such an incentive plan concerning liquidity events, but it's tacit and is anyway orthogonal to stock/option grants.) But you say it explained to everyone at KL "clearly" what was going on. Don't you see that this is one complaint here is that not only wasn't this done, but perhaps the very opposite? And were you given detailed instructions on how (and how quickly) you must exercise vested options if you quit, even though this had no meaning at all whatsoever? If the answer is no, please imagine it was yes. Would you have still been totally confident that you understood the mechanism (wouldn't you have wondered: why are they explaining something that is in practice irrelevant?)
deleted 15y ago
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ianterrell 15y ago

While I understand that legalese is necessary since English is ambiguous in its best moments, the only reasons I see not to include a "plain English" version of a contract are A) to save on lawyer hours, or B) to screw someone over. For most contracts I suspect that the overhead on a plain English version would be very small, as the lawyers' understanding of the topics is necessarily deep to formulate the contract (or they're just shitty lawyers, another topic). Plain English versions of contracts, with their plain English meanings of clauses, should be included in any contract between two parties of vastly different bargaining power, i.e. a corporation with loads of legal resources and a non-millionaire potential employee. Update w.r.t. comments—I understand the points you're making, but I don't think it invalidates the argument. I'm racking my brain to find the examples I've seen, but there do exist in the wild "plain English" versions of contracts that are not binding (and they specify that) but instead contain comprehensible summaries of the salient parts.

salsakran 15y ago
The problem with that is that the legalese version of the contract is supposed to be definitive. If they also provide a plain english and one of the terms when exercised invalidates a "plain english" provision, how is that supposed to be interpreted? In this case it was one of those details that mattered greatly. A plain english version would have just said "you get X options you can exercise on this vesting schedule, subject to terms(*)"
- blinks 15y ago
  That doesn't seem to fix the underlying problem -- they understood/read the plain english version, just not the terms. Honestly (and I'm guilty of this as much as anyone), I doubt they even read the terms. Here we have this huge thread about contract language being hard to understand, but if one doesn't take the time to read through, understand, and _remember_ all the terms of the agreement, how can one act on that information? Complex, perhaps, but it's a complex subject.
  - kenjackson 15y ago

wccrawford 15y ago

"that you will receive no value" is hardly opaque, even if the rest is. Any contract that said that would have me pouring over it with a fine-tooth comb. Or more likely, just rejected it and finding work elsewhere. I wonder if that contract is subject to legal action, though? Seems to me that was a deliberate attempt to screw him over. He shouldn't have signed it, but they shouldn't have written it, either. I'm now serious considering canceling my Skype subscriptions and finding alternatives, despite how useful they are to me a the moment.

pbreit 15y ago
Yeah, I suspect they would have a decent chance at collecting some sort of payout with legal action even though they did sign contracts. It would be common sense to expect notification when such a substantial change was added to an original contract.
akamaka 15y ago
The "receive no value" language is not in the original contract -- that's from a June 13, 2011 letter from one of Skype's attorney's.

paradox95 15y ago

So the people who lost out here have any recourse? I hope they are talking to lawyers. I'm not typically the type of person to sue over everything but this is screaming for a lawsuit.

dctoedt 15y ago

1. By no means do I want to defend Skype here, but the prose in the linked documents isn't especially incomprehensible, at least not for documents of this type. I teach contract drafting to third-year law students. It's hard work to take a complex if-then-else concept and render it in plain English.[a] And here's the rub: Few clients want to pay lawyers to spend extra time on readability -- "good enough" (whatever that means) is the goal. 2. [EDITED TO ADD THIS:] It's not unusual for a private company's employee stock plan to include a "call" option that gives the employer the right to repurchase employee-owned shares when the employee leaves the company. That makes sense when you think about it -- if you're a private company, you don't want a lot of random ex-employees owning dribs and drabs of your shares, especially if you're worried about the 500-shareholder limit (under current law). On the other hand, for a company with an upcoming exit to buy back the shares at the employee's cost, instead of at a good-faith estimate of the stock's then-current value -- well, that does indeed seem unusual. (EDIT: Some documents like this provide that, IF: The company wants to do its buy-back EITHER: (i) after an exit is announced, OR: (ii) if an exit is announced within 30 days or so after the employee's departure; THEN: The employee is entitled to the exit pricing for the buy-back.) 3. Again, not to defend Skype, but conceivably they might not have had a choice about the buy-back price, at least not without jeopardizing some kind of favorable income-tax treatment. If I had to guess, I'd venture that, X number of years ago, some overzealous junior lawyer decided to draft the relevant documents so as to put the company in the strongest position s/he could. Now that zealousness may be tying their hands. I stress that I'm speculating here. * * * [a] If you have occasion to write a complex if-then-else sentence, try using all-caps and punctuation like this: IF: It rains at least one inch today but not more than two inches; AND: It doesn't rain tomorrow; THEN: You will turn on the sprinkler system tomorrow; AND: You will not do so the day after.

ianterrell 15y ago
I'm not sure its being totally readable to a law professor who teaches contracts helps Joe Engineer.
- dctoedt 15y ago
  @ianterrell, consider how often you've had to struggle to make sense of someone else's source code -- it's much the same with contract language. Seldom do lawyers go back and refactor their contract language for improved readability.

kenjackson 15y ago

A big part of business is who you're in bed with. MS should cancel the Skype deal, if at all possible. That would be one sign that they've turned a corner. I will never fork over a dime for any Skype service. This, while legal, is clearly unethical on a broad scale. And its the worst kind of unethical. Apple and MS play hardball with competitors -- but you don't do that with your employees.

powertower 15y ago
What does this have to do with Microsoft?
- JoeAltmaier 15y ago
  If you lie down with dogs, you get up with fleas.
  - joenathan 15y ago
    and if you rock'em sock'em you'll turn into a robot!
MrMan 15y ago
it doesn't matter. there will be no hue and cry about the "retention" issues surrounding this merger, and most of the valuable Skype people will be gone from MSFT as soon as they can anyway. In >1 year, there will be little left of the Skype org chart but the lower part of the pyramid. All the valuable people that for whatever reason are still there at this late date in the company's history will go on to other opportunities.

protomyth 15y ago

in the other thread on this http://news.ycombinator.com/item?id=2691455 http://news.ycombinator.com/item?id=2691455 the article had the following line "the company's decision to repurchase would also cause a tax hit to him" - anyone know how that works?

deleted 15y ago
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yeeguy 15y ago
I'm the guy in the article. So, I got a letter from the Skype HR folks indicating that if I were to persist on the path of exercising my options, then they would: (1) exercise their right to repurchase the shares at grant-price, leaving me with net zero gain; (2) demand tax withholding on the shares, valued at fair market value (substantially higher than grant price, given that the MSFT deal had already been announced) The sum effect of 1 and 2 being net-zero gain on the shares, minus a large chunk of cash out of pocket tied up in a tax withholding account. Terrible.
- lawnchair_larry 15y ago
  It's almost like they want you to know that they are raising the price of admission to even challenge them to a fight. Pure evil.
- protomyth 15y ago
  My sympathy. I am thinking the tax, as described by them, is not how the IRS would view it. I would imagine that you probably want all this behind you, but I would think a lawyer mightbhave a different interpretation. You would still net zero, but the tax things seems way out of left field.
- aphexairlines 15y ago
  Did you get the feeling before from your time there that they were this kind of people?
- r00fus 15y ago

va_coder 15y ago

What's to stop a disgruntled software dev who gets treated this way from secretly using his knowledge to support an open source competitor? It doesn't have to be anything close to a line by line copy, just subtle hints here are there about better, but generic, ways of doing things.

eli 15y ago
The threat of being sued, regardless of whether the lawsuit would be successful

ghshephard 15y ago

Absolutely zero surprise on my side. VCs, and acquiring companies are always looking to maximize their return, as legally as possible during an M&A deal, even (sometimes particularly) if that means screwing over employees who are no longer with the company. I actually like the honesty of this quote: "Silver Lake declined to comment. When asked about Lee’s situation, Skype spokesman Brian O’Shaughnessy said, “You’ve got to be in it to win it. The company chose to include that clause in the contract in order to retain the best and the brightest people to build great products. This individual chose to leave, therefore he doesn’t get that benefit.”" Most people will look at it and say "What an Asswad" - but at least he's not being a hypocrite. That's precisely what everyone in the M&A team is _thinking_ they just aren't _saying_ it. This is another take on what Oracle did when they bought Oblix (I had just left Oblix in 1999) Oracle gave MegaBonuses to all the existing employees and executives, two of the founders, and paid absolutely nothing for the common shares. The acquisition price was still $100Million plus, but there was only enough money to cover the preferred options + liquidation preferences in the "on the record" purchase prices. Effectively, they wiped out all the employees who were common shareholders, but no longer with the company (or were part of the 15-20 out of 100 who were laid off during the acquisition) while taking care of the VCs and the acquired employees. (As a side bonus, they called the money they gave to the acquired employees "Retention Bonuses" - which resulted in the top people having to hang around for another year) Lesson to be learned: When you leave a company, and it is still private - if they are Sold, instead of going public, there are probably any number of ways that you will get wiped out if you are no longer with them - possible exception if you are a founder with a significant percentage of the company, and you might be able to raise a stink for minority shareholder rights. Then you'll get a "consulting bonus" to shut you up. This story is more common than not.

johnrob 15y ago
About a year ago Fred Wilson said straight up that common stock is unreliable and not suitable for investors. Since employees get common stock, the only point of leverage they have is their commitment to future employment. Thus buying options when leaving can be a risky proposition - not only is there risk of failure, there is the risk that the company's value gets laundered into retention packages.
15y ago

deleted 15y ago

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nestlequ1k 15y ago

Anyone interested in joining GoDaddy after the SilverLake deal should have their head examined.

alain94040 15y ago

Amazing, this is the first time I see a stock options agreement where the employee is forced to enter into a partnership for his vested shares. I agree with the blog's title "upgrading Skype to evil". On the other hand, you should have known Skype, incorporated in an international haven, was not your regular startup. EDIT: also, the stock agreement just says "management partnership" on page 3, with no prior definition of what it might be. Later on, it gets more references, without ever being defined. A good lawyer may have a case?

brudgers 15y ago

The article leaves out some relevant context. It appears that Yee Lee was at Skype for one year one month 3/2010 - 4/2011. That entire period of time was after Silverlake had purchased Skype and more importantly after the right to repurchase vested options was in place. It is difficult to see this as private equity screwing over founders or early employees (Skype was founded in 2003 and had been valued at more than $2 billion for five years when Lee Yee came aboard). Indeed given the short tenure of many of the people involved in the story, there seems to be more smoke than fire. [Lee Yee on Linkedin: http://www.linkedin.com/in/yeeguy http://www.linkedin.com/in/yeeguy] [Business Week article correlating Linkedin profile to article: http://www.businessweek.com/magazine/content/11_27/b4235038625596.htm http://www.businessweek.com/magazine/content/11_27/b42350386...] [my comments on previous versions of story: http://news.ycombinator.com/item?id=2672786 http://news.ycombinator.com/item?id=2672786]

NonEUCitizen 15y ago

Silverlake portfolio companies: http://www.silverlake.com/partners/content.php?page=investments-current http://www.silverlake.com/partners/content.php?page=investme...

kenjackson 15y ago
Good luck to the Groupon employees.

NonEUCitizen 15y ago

Silverlake is not the only investor in Skype; e.g. Andreessen Horowitz is too: http://a16z.com/portfolio/ http://a16z.com/portfolio/

alain94040 15y ago
Good point. I'd like to hear either (Andreessen or Horowitz) speak out and say they opposed such tactics. I'll have to add Skype to my list of "rotten ethics in Silicon Valley" (http://blog.fairsoftware.net/2011/06/01/rotten-ethics-in-silicon-valley/ http://blog.fairsoftware.net/2011/06/01/rotten-ethics-in-sil...). When will the investors speak up?

madmanslitany 15y ago

I don't really have much to contribute on the story itself, but I suddenly realized that my former CS472 Artificial Intelligence project partner and friend from Cornell works for Silver Lake, which has led me down an interesting path of daydreaming now that I'm starting work with a Valley-based company in a few weeks. It would actually make for a great short story or novelette to see former classmates on opposite sides of a deal like this. A lot of very smart engineers go straight into jobs in technology sector investment banking, private equity, etc. soon after college that could eventually put them on a collision course with erstwhile friends.

johngalt 15y ago

This is why cash is king and "equity" is worthless. Hey bizdev weenies out there that wonder why you can't find a technical cofounder/employee who will work for equity, here is your answer.

lanstein 15y ago

I'm sure I'm not the only one who reviewed their stock grants... (good news :))

ajays 15y ago

What is Microsoft doing about this? As the acquirer, they may still be able to "do the right thing" and make some of these guys whole. Sure, it may cost them a few million bucks; but can you imagine the goodwill it will generate for Microsoft? You can't buy that kind of good publicity! But will Microsoft do such a thing? I doubt it very much. (I would love to be proven wrong, of course)

contextfree 15y ago
If I were "Microsoft", I'd be thinking more along the lines of "if they went out of their way to sneakily screw over their employees like this, what hidden traps lie in store for us?"

johnarleyburns 15y ago

Something quite similar happened to me at FundsXpress when UBS forced the sale of the company. Even if your startup is successful, your most likely outcome is to get very little from the resulting sale. Succeeding is rare, but making significant money from success is even more rare, even if the company is profitable and makes a large return on investment for the VCs. Statistics-wise, you are better off going into consulting. Don't quit your day job.

arturadib 15y ago

I wonder how many of us are now scrambling to dig up a copy of our stock option agreement. This sets a terrible precedent. In case you didn't get it yet: READ YOUR LEGAL DOCS (sock options, IP, etc) and negotiate sketchy terms before you sign them!

joshu 15y ago

They could also have executed their options to purchase the stock...

daimyoyo 15y ago

This is yet another reason I refuse to use Skype. I won't patronize a company that treats it's employees like that.

cypherpunks 15y ago

I've seen swarms of employees get screwed in ways similar to this. It's not uncommon in Silicon Valley.