13 ms·

Golden Handcuffs

182 points by bitsweet 5y ago

fullshark 5y ago
As a laborer, if I have a choice between a world where golden handcuffs exist and world where they don't, I choose the world where golden handcuffs exist. Presumably the idea is they will be forced to make work better to retain employees instead and it will a net win for workers, but there's zero details or explanation as to how exactly that will happen.
- anonymousiam 5y ago
  There are many different sorts of handcuffs. Mine was a lucrative defined benefit retirement plan. My (former) company eliminated the plan about 30 years ago, but grandfathered everyone who was still in the plan. About two years before I was eligible to retire (early), they changed things again and made it impossible to continue contributing to the plan. They offered a temporarily higher match to 401k contributions as compensation. (For the $200k I lost, I got about $20k back.) Eliminating further contributions meant I could no longer increase my retirement payout. Converting the annuity to lump sum (the obvious choice) meant that my lump sum payout would be reduced every day that I continued working there. The net effect was about a 12% reduction in pay. I took the early retirement as soon as allowed, and then took a job elsewhere for a 15% raise. (The reason for the 12% reduction may not be obvious. When converting an annuity, they look at actuaries to estimate when I will die. The lump sum payout converts the annuity payments from the retirement date to the date of my death into one payment, distributed over five years. If I work longer, the time between my retirement and my death decreases. Thus the longer I work without retiring, the lower the payout.) My golden handcuffs were changed into a golden kick in the arse.
trompetenaccoun 5y ago
Coinbase is an interesting company. They're grossly underrated and laughed off as an online casino, but they invest all that money they make very wisely and strategically to grow the business. I find another paragraph from that press release interesting: >Traditionally people expect they need to negotiate for the best package after being hired in a new job. Those that do this well tend to be rewarded, and those that don’t lose out. These negotiations can disproportionately leave women and underrepresented minorities behind, and a disparity created early in someone’s career can follow them for decades. We want to do everything we can to ensure that’s not the experience at Coinbase. All employees in the same position, in the same location, receive the same salary and equity offer. No exceptions. If this was mandated to be standard practice, instead of the insane approach some countries take with minority quotas and such, we'd be a lot further in terms of equality in the work place. Also salary negotiation favors aggressive and outgoing types, while there might be qualified candidates who get left behind just because of their personality.
- PLenz 5y ago
  This is just reinventing unions but without the employee's ability to input via collective bargaining.
  - akarma 5y ago
    If you're ambitious, this doesn't hurt your ability to join Coinbase and grow quickly, which is an important factor in the tech industry and its appeal of opportunity. A union would. This offers a more level playing field for employees to begin their time at the company without stringent rules around who can get promoted and when and other red tape. Seems like a great decision.
    - joshuamorton 5y ago
      > A union would. This claim is disputed by, like, many unions. Tenure based promotions/compensation is one, but certainly not the only approach that unions use.
      - akarma 5y ago
        Nearly every major union I've seen supports seniority-based promotions. I imagine that this is not popular with many employees, and so it cannot be a part of their initial pitch — as you said, not the only approach unions use. If established unions support seniority-based promotions but nascent ones don't publicly support them, it would follow that they must develop into supporting seniority-based promotions. This is possibly one of those issues where a union gets power and then takes overarching, unpopular measures that rid the company of anyone who wants to work harder and be promoted faster. If you have evidence that unions don't support seniority-based promotions, I would love to see it! I haven't had a chance to gather data, so I'm only speaking anecdotally.
        joshuamorton 5y ago
        > Nearly every major union I've seen supports seniority-based promotions. There are a number of well known counterexamples, sports and acting unions/guilds for example. > If you have evidence that unions don't support seniority-based promotions I've yet to see any tech union advocate for this position, and they generally advocate against it. Tech Workers Coalition and the Alphabet Workers Union are the two I know of in this case. > If established unions support seniority-based promotions but nascent ones don't publicly support them This isn't really correct. Unions in certain fields support seniority based promotions. But on the other hand, certain professional fields support seniority based promotions without unions. Like medical and legal fields have non-union professional associations that afaik don't advocate for any sort of tenure based compensation. Despite that the most sought-after biglaw companies use a mostly-tenure based compensation process. The medical field uses an unholy combination of merit (exams and matching) and tenure (residency). > This is possibly one of those issues where a union gets power and then takes overarching, unpopular measures It's unclear how this could happen. Unions are democratic. The members vote on things. They generally cannot take unpopular measures[*]. It may be that there is a majority in some industries that prefer tenure based seniority. [*]: Ok the exception here is if in a "Right-to-Work" state people refuse to join the union, but it still has a majority membership and is therefore NLRB recognized, so you have say, 51% employees in the union, and those 51% have a directional bias. For example, everyone who supports tenure based compensation is a union member, and they make up 26% of the company, and 52% or so of the union. Then they vote and win and the union contract includes this clause. The fix here, of course, is for other people who don't support this to join the union. But then they don't want to because of the idea that unions are bad and support unpopular policies.
choppaface 5y ago
The C-level to IC comp ratio is still way too astronomical. If a VC is telling you he feels there’s a better way to comp, he has a financial interest in ensuring your loss. Do not support investor-focused comp models like backweighted vesting (Amazon) or outright fraud like a start-up giving you a stock offer with no percentage or no 409A. Employees deserve high-quality equity on par with investors. The OP’s suggestion is a major step back in one of the greediest economies in history. Complete non-starter. Don’t let this guy live in your thoughts rent-free.
- aledalgrande 5y ago
  The options offer with no percentage ("we're giving you a very generous 80,000 options"), always blows my mind!!! And often even without a strike price!
  - ProAm 5y ago
    Always ask for a non-diluatable percentage early on.
    - sokoloff 5y ago
      It’s reasonable to ask “what percentage does this represent on a fully-diluted basis?” It is entirely unreasonable to ask for a percentage of the company which can never be diluted by a future fund-raising round. Doing so just telegraphs that you don’t know how venture funding/corporate finance works.
      - deleted 5y ago
        [deleted]
      - oogabooga123 5y ago
        I’ve scored deals that can’t be diluted for X years after liquidity event, so employees should be able to as well. Don’t put people down with “you must not know what you’re talking about”.
Bulpi 5y ago
I don't mind Golden Handcuffs. Its just one part of a companies toolbox to increase retention. If you would tell me that i get my current additional bonus as it is without splitting it up to 3 years, i would of course take it but i assume that internally they were able to form/create this type of program and the 3 years was an internal bargain chip.
- kelnos 5y ago
  > [Golden Handcuffs are] one part of a companies toolbox to increase retention. Not in any way that's good for the company, though. That'd be a classic application of optimizing for the metric, not in what you really want optimized. Usually if an employee is staying solely or mostly because of the handcuffs, they're not producing their best work, and aren't fully engaged or focused. Do you really want to keep an employee like that around? Wouldn't you rather they left, voluntarily? On the flip side, as an employee, I like the idea of golden handcuffs. In a hypothetical situation where I didn't like where I worked, I could drop down to doing the minimal amount of work that wouldn't get me fired, and coast along while collecting the money. Sure, it's not a particularly fulfilling life, and probably wouldn't be sustainable for the long term, but maybe it's not that bad for a while.
  - foobiekr 5y ago
    > Usually if an employee is staying solely or mostly because of the handcuffs, they're not producing their best work I know plenty of people with handcuffs, including me, and this doesn't apply to any of them. I think that claim is common but is in fact not justified in the real world. Your top performers are basically top performers for personality reasons. Sure, if your company spends 10+ years getting to liquidity, which became popular in the mid-201x because not a single one of them was even remotely financially sound and the markets weren't ready to bite that off yet, you had people staying years longer than they should have, but it is not nearly as big a problem as people claim and was, mostly, because the real value was being captured by early/founder insiders in late stage super-sized PE rounds instead of going public.
seasoup 5y ago
This is a plan that is much worse for employees, being presented as if it were better. At least be honest about feeling like you are paying employees too much equity up front and want to pay them less.
- bps4484 5y ago
  To me this all depends on how it's implemented but you're right to be suspicious. If all they do is give you 1/4 of the equity they were going to give you previously, then yes it drastically reduces employee upside to the benefit of others (execs, investors). But they probably can't do that because it would be harder for them to attract talent against a 4 year vest company. Instead they'll probably have to bump up that initial grant so that when employees do the math there is still the big upside if the company improves.
  - pc86 5y ago
    I'm suspicious of this as well, but would this be better for a lot of employees? Go to Coinbase, get your 25% stock in 25% of the time, then "just" go somewhere else and get more. It's not unheard to return to a company later (Coinbase in this case) and get a better title, additional grant, etc.
- jsjsbdkj 5y ago
  Basically this lets the employer retain more of the upside in stock appreciation - your equity bonus is now recomputed every year at the current stock price, and presumably expressed in dollars (not shares). So they'll say "oh you're getting 50k this year in stock", when you got 40k last year, but meanwhile the share price has doubled and your 40k in equity _would_ be worth 80k if they had given you all 4 years up front. They say it protects against downside, but odds are if the company isn't doing well they'll cut the dollar value of annual bonuses as well.
- pvarangot 5y ago
  Not also pay them less. It turns out that for the average person sometimes this four year grants when fully vested are enough to retire or to switch to a job that pays less but has better WLB. They are paying people less because they want to keep them in the "golden handcuffs" for longer. The way it's painted by this particular VC is particularly gross. Also executives usually keep the upside potential. So as an engineer if because of your work the company skyrockets and becomes 8x more valuable over the year you share 0% of that upside, while executives cash in. On the downside, as an engineer you can just leave because the market is very fluid, truth is you don't need job security from your employer if you are a good software engineer. If/when that changes probably compensation will go down enough so that this mega-grants are not going to be a problem anymore. They are just counting pennies.
throwaway-44373 5y ago
What it seems to me this is saying is the following: - before we'd give you X options (say, 40,000) vesting over 4 years - now you get 1/4 of that, 10,000 vesting annually The strike price of both grants is the same (say, $1/option) Now the question is, what happens year 2? If the company is a lot more valuable, two things will change: - strike price will be higher (say, $3/option) which makes the options slightly less attractive. But that's not the big deal - # of options will go down, because the more companies grow the more options are valuable and the less they give out to employees. So year 2 options will be 5K. If this continues, over 4 years the end the employee will have something like 10K + 5K + 3K + 2K = 20K options vs 40K. Not only that, but the 20K options will have a much higher blended rate. On the positive side, there will be no reason for the employee to stay if they don't want the new grant. But the reason they don't have to stay is that they were not comp'ed as much in the beginning. So me reading between the lines, this will mean a lot less compensation for early employees of successful startups vs the traditional model. There is a reason why the handcuffs are called golden. At the end of the day employees decide to stay because it's worth it for them.
- drenvuk 5y ago
  >There is a reason why the handcuffs are called golden. At the end of the day employees decide to stay because it's worth it for them. Precisely this. Coinbase has made it and now they want to keep employees from resting and vesting. Stripe did this too. they're just being cheap.
kritiko 5y ago
This reminds me of restaurants adopting (and then mostly abandoning) no tipping policies. You're trying to change an entire culture, good luck! "Letting that market operate efficiently and not trying to game it makes a lot of sense to me." This is not obvious to me. In many ways, the job market is not like other markets. Onboarding employees is a money-losing proposition. Turnover is disruptive. Recruiters cost money. Benefits operate on a calendar-year basis or have waiting periods.... I could go on, but there are all sorts of reasons for companies to pursue retention over an "efficient market."
drewg123 5y ago
One of the things that I love about working for Netflix is that they just pay you every 2 weeks and that's basically it. There are no RSUs that are stacking up, no yearly bonus, etc. No smoke and mirrors. No internal websites to calculate the value of your compensation like at Google. I remember how much trouble the yearly bonuses caused when I worked at Google. In the fall, some people would become much less active and turn from top performers into dead wood while they hung around, waiting for the yearly bonus payout in Jan.
- oblio 5y ago
  Why would they become less active in the fall? Wouldn't it make sense for them to be less active after January?
  - drewg123 5y ago
    There was a mental perception that if you left just a "few" months from the yearly bonus payout, you were leaving money on the table. So people would normally leave in the spring and summer, but try to stick it out until the bonus if they were thinking about leaving in Oct. or later, since it was only 3 more months..
    - walshemj 5y ago
      Its the same in finance
- walshemj 5y ago
  The opposite side is two of my ex employers (one from 20 years ago) shares are still paying tax fee dividends in my ISA and increasing in value.
  - toast0 5y ago
    If you work for a company that pays you cash money only, you can buy their shares in a brokerage account (taxable or tax-advantaged). If you work for a company that does RSUs, you have to wait for vesting, and it's not consistent money; it's nice when the stock price is going up, and it's not nothing when it's going down like options are, but if it's a publically traded company, why not just pay me the $x/year in dollars and I'll do what I think is right. (Which, for me, isn't going to be holding the stock of my employer directly; I've got enough exposure to them through my paycheck and index funds, thanks.)
nineplay 5y ago
I've talked to two FAANG-level recruiters recently about remote openings, which are all the rage now. One was willing to give a base-salary range but absolutely refused to provide any comp information beyond that. Signing bonus? Equity? "We are still working out those numbers for remote employees, we'll negotiate when we give you an offer" The other - everyone at the same level at the same location gets the same comp and the same equity, here it is. Guess which one I'm willing to pursue. These days the whole process of doing a tech interview is grueling, between the 'leet' coding practice, the take-home assignments, the 4-8 separate interviews. If they think I'm putting myself through all that without some guarantee of a considerable pay raise, they're crazy. I don't think "wait til we get you the offer" is going to work much longer for a lot of companies. Not unless they go back to the old-fashioned "tell us about yourself" interviews, which would be quite a relief but I don't see happening anytime soon.
- hinkley 5y ago
  > we'll work it out when [we] give you an offer Maybe I'm a cynic, or I've read too many books with a powerful cabal that lies while telling the truth. But one interpretation of these words is that you are going to be a test subject in that 'work it out' activity.
  - nineplay 5y ago
    I wouldn't be surprised after all the hemming and hawing about how they don't have remote compensation numbers in place. "How much less can we pay people who don't live in SV? Let's bring a bunch of chumps in and low-ball them to find out."
    - hinkley 5y ago
      I think we underestimate the amount of self-deception that goes on with these deceptions. As evil as some people can be, I think more often we are just unwilling passengers on someone else's delusion. Waking up every day thinking that things aren't going to work out is hell. At some point you have to do something about it, or you can't keep going on. Hope doesn't care if it's objective or not, and evolution preserves it if it actually works slightly more than never.
qdog 5y ago
The problem is unless you hold onto the stock, you are not tied to the long-term growth of the company. I think this is really trying to optimize to keep only the high performers without having to have a traditional stack ranking system. Interestingly, I recall the Google article about the highest performing teams not being made up of the highest performing individuals, but the best communicators. No one seems to be trying to hire to create the best teams, but still just the highest performing individuals. Perhaps there is a Moneyball in tech work.
- boldslogan 5y ago
  one thing i think about, is hiring entire teams or groups at least of two to three instead of poaching just one person from a competitor/etc.
- pvarangot 5y ago
  > the highest performing teams not being made up of the highest performing individuals, but the best communicators Not saying this may not be like, true in the ontological sense... but as an experiment it's shitty because they measure performance by how good you are at communicating what you did and what impact it had.
tourist_on_road 5y ago
I sense greed on part of coinbase. If coinbase doesn't want to have 4 year vest schedule which makes up a significant portion of salary, Why don't they follow what netflix is doing and just give out salary as full base salary instead of any RSUs.
cddotdotslash 5y ago
Can we just link directly to the Coinbase post [1] instead of this 8-sentence blog spam? [1] https://blog.coinbase.com/how-coinbase-is-rethinking-its-approach-to-compensation-9aaf7d5d638e https://blog.coinbase.com/how-coinbase-is-rethinking-its-app...
- elefanten 5y ago
  Thanks. This was much more informative. For those wondering, they’re doing: -increasing comp targets to be at or above industry 75th percentile across the company -no negotiation for comp (standardized starting offer by location/role) -yearly stock grants with no 1 year cliff upon hire
  - sokoloff 5y ago
    "75th percentile of industry" is almost meaningless. Does industry include programmers at Comcast, Liberty Mutual Insurance, Staples, Smalltown Bank, Wipro, and everyone else who employs programmers in any capacity? Or does it mean Amazon, Facebook, Netflix, and Google? If you're beating three out of those four, your comp is excellent. If you're beating 3 out of 4 all companies who hire programmers, you're hopelessly uncompetitive with the "actual" top tech market.
    - jacobr1 5y ago
      It is a named set of a peer SV companies. So probably FAANG, but they don't give specifics.
- dang 5y ago
  Hmm - turns out it had a thread here - https://news.ycombinator.com/item?id=27119787 https://news.ycombinator.com/item?id=27119787. We could re-up that one instead, but it's not very good. Normally I'd agree with you and merge the threads or similar—but I'm not sure I'd call this post blog spam. It's true that it doesn't go deep, but he's raising a general question that isn't quite the same thing as the OP.
- 988747 5y ago
lostdog 5y ago
Both this VC's post and coinbase's post ignore the 90-day exercise window on stock options, so they're getting rid of the "golden" but keeping the "handcuffs."
- dalyons 5y ago
  Well coinbase is RSUs now(and for quite awhile), so exercise window doesn’t apply
gkoberger 5y ago
This sounds employee-friendly, but it's total BS. You'll just be getting less equity at a higher strike price every year, so it's just a sneaky way for these companies to give employees less. They can still say "we're giving you $100k in stock this year", but it's a lot less stock since you're not locked into a strike price. If you want to leave after 1 year (post-cliff), you can leave under either scheme and get 1 year's worth of equity. This doesn't solve any "golden handcuff" problems, it just hurts employees.
- whoisjuan 5y ago
  Do you realize that Coinbase is now a public company? There’s no such a thing as strike price because their stock compensation is likely done through RSUs. Not stock options. Public companies issue an RSU grant at the beginning of employment and at no cost for the employee. Also if the share price goes below the grant date price, you’re likely recalibrated through rolling refreshers.
  - deleted 5y ago
    [deleted]
  - sologoub 5y ago
    Terminology aside, the general principle is still the same issue and employees ARE better of with 4 year grants in high growth companies. Let’s say you target RSU comp is $100k per year. Stock is $100 in year 1, $125 in year 2, $150 in year 3 and $200 in year 4. Ignoring inflation and taxes to make this easier to illustrate. 1) initial 4 year grant - $100k x 4 = $400k at $100/share is 4k shares. Assuming you keep all of your RSUs, you have $800k worth at year 4. 2) $100k of shares paid each year: year 1 - 1000 shares, year 2 - 800 shares, year 3 - 666.67 shares, year 4 - 500 shares. 4 year total comp in year 4 shares values is $593,334 So the employee receives $206.7k less under the new scheme versus the 4 year one. In reality, it’s even worse because we are talking high growth business here. Layering in annual refreshers helps as well, but this is where things generally plateau a bit.
    - deleted 5y ago
      [deleted]
codemac 5y ago
Huh? So now handcuffs with no gold? This is much worse for start up employees - as grants each year allow for even more dilution, management hand wringing, and changed expectations. Do founders stock get magically taken away when they suck at being a CEO? When deadlines are missed? Generally they just get moved to the board. The commitment you receive from your employees is HUGE. They show up 40+ hours a week, and bet their entire family and time on your company. Stop acting like somehow paying them even 0.1% as well as your founder is somehow a "bad marriage". If they're pulling down the team, fire them. If you're afraid they're making too much money and may quit / retire - why are you in capitalism at all? Ownership is supposed to provide benefits. The brazen attitude towards those that actually build your ivory tower is incredible.
ericjang 5y ago
My general rule of thumb is that if the new comp arrangement isn't better in an obvious, predictable way, then it probably isn't better for the employee. I think it would be good for Fred or Coinbase comp team to provide the expected payoff calculations for various kinds of employees under this new scheme - the hard numbers and probabilities (even optimistic ones) would be what convince me.
flashgordon 5y ago
I wonder if this is a good thing for "early-ish stage startups" in the long run? If all big-cos start doing this (and since the first few players have already folded I dont see a reason for the rest not to) this may end up standardizing pays with no upside for the employees. So finally the risk-taking employees have more of an incentive to found or join startups. May be even better, since this kind of greed is (possibly) a by-product of the size more of the startups will be motivated towards more realistic exits instead of growth for the sake of growth!
darod 5y ago
Is he misusing the definition for "golden handcuffs"? From my understanding, the issue is that an employee has 90 days to exercise one's options. Most can't afford to do so if the company isn't public due to the cost to exercise and the tax burden. I'm not sure how this new options structure addresses that.
- itake 5y ago
  There are many forms of golden handcuffs. Public companies gives you X dollars worth of shares at the current price of your start date over 4 years. Meaning if today the shares are worth $1 and they want to give you $100k of shares, then you get 100k shares over 4 years. If after 2 years, the unvested shares (50k) 3x in value, ($150k) you have to stay to continue to earn the same number of shares, but are worth 3x what they originally were.
- compiler-guy 5y ago
  The term isn't very precise, but is generally taken to mean "promised future compensation". The 90-day rule for exercising illiquid options absolutely is one form of promised future compensation, but so are future options clearly in the money, or even highly-appreciated real shares about to vest. So he isn't misusing the definition, just using the broadest possible sense of the term.
- ska 5y ago
  > Is he misusing the definition for "golden handcuffs"? No; in general "golden handcuffs" refer to any situation where future financial compensation counterbalances any desire to leave. You give one example, but there are lots of scenarios (it could as easily be pension qualification, or earn-out rights, or whatever).
TulliusCicero 5y ago
I don't see how 4-year stock grants that steadily vests are golden handcuffs at all, since if you switch to a similar company they'll just give you a new stock grant that also steadily vests. The only part that's like golden handcuffs is the 1-year cliff that's standard, but 1 year ain't bad.
- rawtxapp 5y ago
  More likely than not, your current stock has appreciated significantly (at least at FAANG), so you would be leaving all the paper gains on the table. And it's not guaranteed that you're getting vesting stock at the next company.
- KaiserPro 5y ago
  Depends on how big it is. For me, my base salary is quite enormous, but with some work I could find something within 20%. (I am exceptionally lucky, its not skill) However, what I can't replace is the stocks. Depending on performance its ~3-5 times my already vastly over inflated annual wage. So I'm stuck here at the boring FAANG company not achieving very much, because to walk away from a small fortune would be madness. There is no real incentive to work harder, because the difference between working a normal 35hour work week, and the 75 hour week required for promotion is another 10% on base.
  - ghaff 5y ago
    Add to that the grass isn't always greener. If you've "lucked" into a really lucrative opportunity and you can do fine with sane working hours and a decent if not exciting environment, a lot of people would be advised to think hard and long before heading off.
smilekzs 5y ago
From the linked article on Coinbase's compensation ( https://blog.coinbase.com/how-coinbase-is-rethinking-its-approach-to-compensation-9aaf7d5d638e https://blog.coinbase.com/how-coinbase-is-rethinking-its-app... ): > Because our standard offers are world-class, we are officially eliminating negotiations on salary and equity from our recruiting process. > We are OK if we lose some candidates due to this decision — the best candidates for Coinbase are those who are looking for a highly competitive package and are ready to let their contributions speak for themselves. I'm sorry but that's a self-contradiction (even oxymoron). "highly competitive package" these days is after negotiation, period. If you're 100% firm on the offer when asked, then people seeking "highly competitive package" (after balancing all other factors of course) can and will simply walk. As for the "let their contributions speak for themselves": For (especially early stage) startups, any promise to raise the compensation later *cannot be trusted*, period. It's not written on your offer (except for maybe "guaranteed/target bonus"), and the management could always come up with "budgets" --- basically handing out far less than what would make up for the initial compensation deficit, maybe except for a few people in the "inner circle". Having been both in and out of the "inner circle" myself, this difference can be significant over time. Also as the startup goes through funding rounds, company policy will change and the people who "promised" you will inevitably leave, etc. etc.
- alecbz 5y ago
  On the one hand I want to agree, having to trust that a company will Definitely For Sure pay you more once you've earned it is a really hard pill to swallow. But on the other hand, it does seem off for so much of your compensation to be based on how well you perform in a five hour interview or how well negotiate it as opposed to your actual work.
  - titanomachy 5y ago
    They also have the option of firing you quickly if it turns out that you're not as good as the interview led them to believe. You'd still get paid for the time you work, but they get the signing bonus back and get to keep all their equity.
smilekzs 5y ago
> the idea that an employee can’t leave because they would be giving up too much money if they do. This is part of the reason a cash-biased compensation package at a startup can be attractive. Effectively it places less coupling between your career path and financial success, which IMHO reduces unnecessary stress and gives you freedom to make the trade-off between these two at the time of _your convenience_, rather than some fixed number of months.
ralph84 5y ago
Don't piss on my shoes and tell me it's raining. Just say it: As an investor you want to keep more of the wealth employees create for you.
conjecTech 5y ago
This is horrific for employees. Ben Kuhn already nailed the math here[1]. The optionality embedded in long-dated grants is a huge fraction of total comp at high-growth companies and represent almost the entire right tail of outcomes. It also requires assumptions about the future, which is why companies generally abstain from quantifying what it's worth. It seems like the companies doing this are trying to arb that uncertainty by retaining all of the potential gain for themselves in exchange for a slightly larger nominal income. Don't do it. [1] https://www.benkuhn.net/optopt/ https://www.benkuhn.net/optopt/
- analyst74 5y ago
  This is no different from how Amazon does targeted compensation, where rising stock price means you get less/no refresher and raises, or all-cash comp at Netflix. It's catering to more risk-averse candidate pool.
  - valdiorn 5y ago
    Having worked somewhere where I had a large deferred bonus, which I had to walk away from after the company turned hostile very quickly, I'd much, MUCH prefer to get my bonus paid out at the end of each year, vs. having it deferred, even if I have to take a hit on overall comp instead. You just can't estimate how compatible you and your employer will be 4 years in the future.
    - patrickmn 5y ago
      never even heard of that kind of bonus. it sounds like it's designed to work exactly this way.
  - lumost 5y ago
    Amazon does targeted comp 2 years in the future. While in theory the company may act to make people whole in a given year. This will practically occur via dive and saves or truly exceptional circumstances such as the stock suddenly dropping 2-4x and new hire grants effectively becoming non-competitive.
compiler-guy 5y ago
"A bird in hand is worth two in a bush." This seems to make long-term ccompensation even more volatile. Who says the company will grant me a similar options package all 4-years. Business needs change, and it might do any of a million other things. Sure, the stock-price may go up, or may fall, but that is somewhat out of the day-to-day control of the company. Or it is much more out of the company's control than next year's personnel budget, where you just have to convince the CFO of what the right grant value will be.
Trumpi 5y ago
If my base salary is competitive, and I get vesting grants on top of that, then I don't see it as a bad thing. If the vesting grants are an excuse to underpay me, then that is a bad thing. An employer's perspective is different to mine, and some companies cannot compete by offering grants. This is probably what this article is really about.
mattpratt 5y ago
Reminds me of a16z's "dead equity" blogpost, largely revolving around employees with lingering options who no longer contributed their "fair share". https://a16z.com/2016/06/23/options-timing/ https://a16z.com/2016/06/23/options-timing/ > Well, not exactly. There is a more fundamental issue at the > heart of this seemingly good solution: A 10-year exercise > window is really a direct wealth transfer from the employees > who choose to remain at the company and build future > shareholder value, to former employees who are no longer > contributing to building the business/ its ultimate value. But not mentioned in either is that these long running exercise windows "hurt" _all_ shareholders, especially investors. Nice of both to make this about the little man/woman. I only wish their worth and value to the company was met with the same scrutiny they seem to give employees.
alecbz 5y ago
I feel like you only need to read into this a _tiny_ bit to see how weird it sounds: > It sucks that people might want to leave a company but won't because of how well they pay, so we decided to stop paying so well! Problem solved! It'd be one thing if the comp was adjusted somehow to make up for the loss of extra upside. (Some companies switching to 1-year grants seem to be saying they're going down this route). But just cutting the grant length is literally just a comp decrease. (Which, of course, makes it easier to leave).
deleted 5y ago
[deleted]
zuhayeer 5y ago
Some more on single year equity grants here: https://www.levels.fyi/blog/one-year-equity-grants-vesting-schedule.html https://www.levels.fyi/blog/one-year-equity-grants-vesting-s... This seems like something more later stage, high growth companies are adopting. It’s simply much cheaper for the company to give out single year grants. Basically a challenge to the whole "rest and vest" culture.
ec109685 5y ago
I don’t get this spin. In the old way, you had golden handcuffs because your stock had appreciated so much, it made financial sense to stick around until your options fully vested. In the new way, all that potential upside comp is eliminated, so employees will earn less and feel better about leaving. Seems like first option is far better for employees. Please give me those golden handcuffs. This was also the best way for normal employees to “strike it rich”, which isn’t a bad thing.
colin_mccabe 5y ago
A lot of companies stop issuing stock options when they get to a certain size. Part of the thinking is that the company is now a "safe bet" so there's no need to give employees a potentially large upside in exchange for staying around. Another reason for doing this is that stock options don't work well when the stock price (and company valuation) is already high. You end up with a big tax bill betting on growth that often doesn't come for already-highly-valued companies. You could spin this as being employee-friendly, but it's more about being pragmatic about the fact that the company probably won't be able to 10x its valuation like in the old days, and now views itself as "safer."
URSpider94 5y ago
After thinking about this, I think they’ve created a false dichotomy here. As an employee who is heavily compensated with stock, I’ve experienced “golden handcuffs,” where my annual compensation, including vesting shares, is much higher than what the company, or any other rational employer, would have paid me that year. The only way to fix this would be … to pay me less by not granting me restricted shares for so far into the future. Net-net, the enterprise will shell out less money in compensation under this plan. I can see why companies don’t like this situation, because it’s very hard to reward performance with compensation when everyone is making far more than scale. Your best and worst performers all take home big checks. But to pitch this as an employee-friendly move is gaslighting at its worst.
6gvONxR4sf7o 5y ago
I feel like four year stock grants, more than anything else, are responsible for the upwards wage pressure that has led to the high pay in the Silicon Valley tech scene. You come in earning $X and a few years later you’re earning $2X without needing a promotion. Now if another company wants to steal you away they have to offer starting comp to match your golden handcuffs. Reduced golden handcuffs can only hurt the rank and file labor market. No surprise a VC is enthusiastic about it.
lumost 5y ago
As an employee this opens a few uncomfortable discussions. If your comp is heavy on equity, you may find yourself facing a paycut next year. For many engineers this could easily be a sudden 50% paycut during performance reviews. If a company chooses not to refresh your grant at the same level in 2-3 years time, then you'll have had plenty of warning to leave or for you and the company to figure things out. The problem with a 1 year grant is that it provides an unstable compensation target, for a public company most employees will prefer cash to shares that may be up or down 15% at year end.
dasil003 5y ago
Okay, reality check: the most substantive part of this change is shifting 4-year vest to 1-year vest. This means 75% of the upside an employees stock compensation is taken away. That's the main effect here. The rest of the talk about percentile pay comp targets among peer companies is rounding error by comparison. If FAANG had adopted this structure over the last 13 years, understand the number of rank and file engineers that became millionaires would have been reduced by an order of magnitude or more. This is just another way for VCs and finance in general to use their knowledge and positioning to skim all the upside on fast-growing companies. It's one thing for a company to change their compensation policy and spin it in the best possible light—I don't like it, but it's just one company and I can at least hope the market teaches them a lesson. However for a VC like Fred Wilson to try to paint this as an unequivocal good is disgusting. Essentially this "golden handcuffs" argument is saying that rank and file employees who earn above market due to betting their labor long-term on a single company are a risk that should not be allowed.
einpoklum 5y ago
> We operate in an open market for talent. Don't you just love it when you're treated as a commodity in a market? > we ... expect them to earn their seat at Coinbase. So, I'm working someplace, I'm always under threat of termination and have to prove, repeatedly, that my seat shouldn't be taken from under me. Of course, the owners of coinbase don't have to earn their seats every year, or any year, right? At this point I would make a derisive comment about Capitalism, but to be honest - the company's business is financial speculation with made-up currency, so I guess that's to be expected.
almost_usual 5y ago
No desire to invest in Coinbase or work there.
kerng 5y ago
No one year cliff good. New grant (assuming with new price) every year is a joke. Potential for rapid wealth growth is the reason many work for a startup in first place.
zuhayeer 5y ago
If this is so good, why not switch your old employees on the 4 year grants to it?

182 points by bitsweet 5y ago

As a laborer, if I have a choice between a world where golden handcuffs exist and world where they don't, I choose the world where golden handcuffs exist. Presumably the idea is they will be forced to make work better to retain employees instead and it will a net win for workers, but there's zero details or explanation as to how exactly that will happen.

anonymousiam 5y ago
There are many different sorts of handcuffs. Mine was a lucrative defined benefit retirement plan. My (former) company eliminated the plan about 30 years ago, but grandfathered everyone who was still in the plan. About two years before I was eligible to retire (early), they changed things again and made it impossible to continue contributing to the plan. They offered a temporarily higher match to 401k contributions as compensation. (For the $200k I lost, I got about $20k back.) Eliminating further contributions meant I could no longer increase my retirement payout. Converting the annuity to lump sum (the obvious choice) meant that my lump sum payout would be reduced every day that I continued working there. The net effect was about a 12% reduction in pay. I took the early retirement as soon as allowed, and then took a job elsewhere for a 15% raise. (The reason for the 12% reduction may not be obvious. When converting an annuity, they look at actuaries to estimate when I will die. The lump sum payout converts the annuity payments from the retirement date to the date of my death into one payment, distributed over five years. If I work longer, the time between my retirement and my death decreases. Thus the longer I work without retiring, the lower the payout.) My golden handcuffs were changed into a golden kick in the arse.

trompetenaccoun 5y ago

Coinbase is an interesting company. They're grossly underrated and laughed off as an online casino, but they invest all that money they make very wisely and strategically to grow the business. I find another paragraph from that press release interesting: >Traditionally people expect they need to negotiate for the best package after being hired in a new job. Those that do this well tend to be rewarded, and those that don’t lose out. These negotiations can disproportionately leave women and underrepresented minorities behind, and a disparity created early in someone’s career can follow them for decades. We want to do everything we can to ensure that’s not the experience at Coinbase. All employees in the same position, in the same location, receive the same salary and equity offer. No exceptions. If this was mandated to be standard practice, instead of the insane approach some countries take with minority quotas and such, we'd be a lot further in terms of equality in the work place. Also salary negotiation favors aggressive and outgoing types, while there might be qualified candidates who get left behind just because of their personality.

PLenz 5y ago
This is just reinventing unions but without the employee's ability to input via collective bargaining.
- akarma 5y ago
  If you're ambitious, this doesn't hurt your ability to join Coinbase and grow quickly, which is an important factor in the tech industry and its appeal of opportunity. A union would. This offers a more level playing field for employees to begin their time at the company without stringent rules around who can get promoted and when and other red tape. Seems like a great decision.
  - joshuamorton 5y ago
    > A union would. This claim is disputed by, like, many unions. Tenure based promotions/compensation is one, but certainly not the only approach that unions use.
    - akarma 5y ago
      Nearly every major union I've seen supports seniority-based promotions. I imagine that this is not popular with many employees, and so it cannot be a part of their initial pitch — as you said, not the only approach unions use. If established unions support seniority-based promotions but nascent ones don't publicly support them, it would follow that they must develop into supporting seniority-based promotions. This is possibly one of those issues where a union gets power and then takes overarching, unpopular measures that rid the company of anyone who wants to work harder and be promoted faster. If you have evidence that unions don't support seniority-based promotions, I would love to see it! I haven't had a chance to gather data, so I'm only speaking anecdotally.
      - joshuamorton 5y ago
        > Nearly every major union I've seen supports seniority-based promotions. There are a number of well known counterexamples, sports and acting unions/guilds for example. > If you have evidence that unions don't support seniority-based promotions I've yet to see any tech union advocate for this position, and they generally advocate against it. Tech Workers Coalition and the Alphabet Workers Union are the two I know of in this case. > If established unions support seniority-based promotions but nascent ones don't publicly support them This isn't really correct. Unions in certain fields support seniority based promotions. But on the other hand, certain professional fields support seniority based promotions without unions. Like medical and legal fields have non-union professional associations that afaik don't advocate for any sort of tenure based compensation. Despite that the most sought-after biglaw companies use a mostly-tenure based compensation process. The medical field uses an unholy combination of merit (exams and matching) and tenure (residency). > This is possibly one of those issues where a union gets power and then takes overarching, unpopular measures It's unclear how this could happen. Unions are democratic. The members vote on things. They generally cannot take unpopular measures[*]. It may be that there is a majority in some industries that prefer tenure based seniority. [*]: Ok the exception here is if in a "Right-to-Work" state people refuse to join the union, but it still has a majority membership and is therefore NLRB recognized, so you have say, 51% employees in the union, and those 51% have a directional bias. For example, everyone who supports tenure based compensation is a union member, and they make up 26% of the company, and 52% or so of the union. Then they vote and win and the union contract includes this clause. The fix here, of course, is for other people who don't support this to join the union. But then they don't want to because of the idea that unions are bad and support unpopular policies.

choppaface 5y ago

The C-level to IC comp ratio is still way too astronomical. If a VC is telling you he feels there’s a better way to comp, he has a financial interest in ensuring your loss. Do not support investor-focused comp models like backweighted vesting (Amazon) or outright fraud like a start-up giving you a stock offer with no percentage or no 409A. Employees deserve high-quality equity on par with investors. The OP’s suggestion is a major step back in one of the greediest economies in history. Complete non-starter. Don’t let this guy live in your thoughts rent-free.

aledalgrande 5y ago
The options offer with no percentage ("we're giving you a very generous 80,000 options"), always blows my mind!!! And often even without a strike price!
- ProAm 5y ago
  Always ask for a non-diluatable percentage early on.
  - sokoloff 5y ago
    It’s reasonable to ask “what percentage does this represent on a fully-diluted basis?” It is entirely unreasonable to ask for a percentage of the company which can never be diluted by a future fund-raising round. Doing so just telegraphs that you don’t know how venture funding/corporate finance works.
    - deleted 5y ago
      [deleted]
    - oogabooga123 5y ago
      I’ve scored deals that can’t be diluted for X years after liquidity event, so employees should be able to as well. Don’t put people down with “you must not know what you’re talking about”.

Bulpi 5y ago

I don't mind Golden Handcuffs. Its just one part of a companies toolbox to increase retention. If you would tell me that i get my current additional bonus as it is without splitting it up to 3 years, i would of course take it but i assume that internally they were able to form/create this type of program and the 3 years was an internal bargain chip.

kelnos 5y ago
> [Golden Handcuffs are] one part of a companies toolbox to increase retention. Not in any way that's good for the company, though. That'd be a classic application of optimizing for the metric, not in what you really want optimized. Usually if an employee is staying solely or mostly because of the handcuffs, they're not producing their best work, and aren't fully engaged or focused. Do you really want to keep an employee like that around? Wouldn't you rather they left, voluntarily? On the flip side, as an employee, I like the idea of golden handcuffs. In a hypothetical situation where I didn't like where I worked, I could drop down to doing the minimal amount of work that wouldn't get me fired, and coast along while collecting the money. Sure, it's not a particularly fulfilling life, and probably wouldn't be sustainable for the long term, but maybe it's not that bad for a while.
- foobiekr 5y ago
  > Usually if an employee is staying solely or mostly because of the handcuffs, they're not producing their best work I know plenty of people with handcuffs, including me, and this doesn't apply to any of them. I think that claim is common but is in fact not justified in the real world. Your top performers are basically top performers for personality reasons. Sure, if your company spends 10+ years getting to liquidity, which became popular in the mid-201x because not a single one of them was even remotely financially sound and the markets weren't ready to bite that off yet, you had people staying years longer than they should have, but it is not nearly as big a problem as people claim and was, mostly, because the real value was being captured by early/founder insiders in late stage super-sized PE rounds instead of going public.

seasoup 5y ago

This is a plan that is much worse for employees, being presented as if it were better. At least be honest about feeling like you are paying employees too much equity up front and want to pay them less.

bps4484 5y ago
To me this all depends on how it's implemented but you're right to be suspicious. If all they do is give you 1/4 of the equity they were going to give you previously, then yes it drastically reduces employee upside to the benefit of others (execs, investors). But they probably can't do that because it would be harder for them to attract talent against a 4 year vest company. Instead they'll probably have to bump up that initial grant so that when employees do the math there is still the big upside if the company improves.
- pc86 5y ago
  I'm suspicious of this as well, but would this be better for a lot of employees? Go to Coinbase, get your 25% stock in 25% of the time, then "just" go somewhere else and get more. It's not unheard to return to a company later (Coinbase in this case) and get a better title, additional grant, etc.
jsjsbdkj 5y ago
Basically this lets the employer retain more of the upside in stock appreciation - your equity bonus is now recomputed every year at the current stock price, and presumably expressed in dollars (not shares). So they'll say "oh you're getting 50k this year in stock", when you got 40k last year, but meanwhile the share price has doubled and your 40k in equity _would_ be worth 80k if they had given you all 4 years up front. They say it protects against downside, but odds are if the company isn't doing well they'll cut the dollar value of annual bonuses as well.
pvarangot 5y ago
Not also pay them less. It turns out that for the average person sometimes this four year grants when fully vested are enough to retire or to switch to a job that pays less but has better WLB. They are paying people less because they want to keep them in the "golden handcuffs" for longer. The way it's painted by this particular VC is particularly gross. Also executives usually keep the upside potential. So as an engineer if because of your work the company skyrockets and becomes 8x more valuable over the year you share 0% of that upside, while executives cash in. On the downside, as an engineer you can just leave because the market is very fluid, truth is you don't need job security from your employer if you are a good software engineer. If/when that changes probably compensation will go down enough so that this mega-grants are not going to be a problem anymore. They are just counting pennies.

throwaway-44373 5y ago

What it seems to me this is saying is the following: - before we'd give you X options (say, 40,000) vesting over 4 years - now you get 1/4 of that, 10,000 vesting annually The strike price of both grants is the same (say, $1/option) Now the question is, what happens year 2? If the company is a lot more valuable, two things will change: - strike price will be higher (say, $3/option) which makes the options slightly less attractive. But that's not the big deal - # of options will go down, because the more companies grow the more options are valuable and the less they give out to employees. So year 2 options will be 5K. If this continues, over 4 years the end the employee will have something like 10K + 5K + 3K + 2K = 20K options vs 40K. Not only that, but the 20K options will have a much higher blended rate. On the positive side, there will be no reason for the employee to stay if they don't want the new grant. But the reason they don't have to stay is that they were not comp'ed as much in the beginning. So me reading between the lines, this will mean a lot less compensation for early employees of successful startups vs the traditional model. There is a reason why the handcuffs are called golden. At the end of the day employees decide to stay because it's worth it for them.

drenvuk 5y ago
>There is a reason why the handcuffs are called golden. At the end of the day employees decide to stay because it's worth it for them. Precisely this. Coinbase has made it and now they want to keep employees from resting and vesting. Stripe did this too. they're just being cheap.

kritiko 5y ago

This reminds me of restaurants adopting (and then mostly abandoning) no tipping policies. You're trying to change an entire culture, good luck! "Letting that market operate efficiently and not trying to game it makes a lot of sense to me." This is not obvious to me. In many ways, the job market is not like other markets. Onboarding employees is a money-losing proposition. Turnover is disruptive. Recruiters cost money. Benefits operate on a calendar-year basis or have waiting periods.... I could go on, but there are all sorts of reasons for companies to pursue retention over an "efficient market."

drewg123 5y ago

One of the things that I love about working for Netflix is that they just pay you every 2 weeks and that's basically it. There are no RSUs that are stacking up, no yearly bonus, etc. No smoke and mirrors. No internal websites to calculate the value of your compensation like at Google. I remember how much trouble the yearly bonuses caused when I worked at Google. In the fall, some people would become much less active and turn from top performers into dead wood while they hung around, waiting for the yearly bonus payout in Jan.

oblio 5y ago
Why would they become less active in the fall? Wouldn't it make sense for them to be less active after January?
- drewg123 5y ago
  There was a mental perception that if you left just a "few" months from the yearly bonus payout, you were leaving money on the table. So people would normally leave in the spring and summer, but try to stick it out until the bonus if they were thinking about leaving in Oct. or later, since it was only 3 more months..
  - walshemj 5y ago
    Its the same in finance
walshemj 5y ago
The opposite side is two of my ex employers (one from 20 years ago) shares are still paying tax fee dividends in my ISA and increasing in value.
- toast0 5y ago
  If you work for a company that pays you cash money only, you can buy their shares in a brokerage account (taxable or tax-advantaged). If you work for a company that does RSUs, you have to wait for vesting, and it's not consistent money; it's nice when the stock price is going up, and it's not nothing when it's going down like options are, but if it's a publically traded company, why not just pay me the $x/year in dollars and I'll do what I think is right. (Which, for me, isn't going to be holding the stock of my employer directly; I've got enough exposure to them through my paycheck and index funds, thanks.)

nineplay 5y ago

I've talked to two FAANG-level recruiters recently about remote openings, which are all the rage now. One was willing to give a base-salary range but absolutely refused to provide any comp information beyond that. Signing bonus? Equity? "We are still working out those numbers for remote employees, we'll negotiate when we give you an offer" The other - everyone at the same level at the same location gets the same comp and the same equity, here it is. Guess which one I'm willing to pursue. These days the whole process of doing a tech interview is grueling, between the 'leet' coding practice, the take-home assignments, the 4-8 separate interviews. If they think I'm putting myself through all that without some guarantee of a considerable pay raise, they're crazy. I don't think "wait til we get you the offer" is going to work much longer for a lot of companies. Not unless they go back to the old-fashioned "tell us about yourself" interviews, which would be quite a relief but I don't see happening anytime soon.

hinkley 5y ago
> we'll work it out when [we] give you an offer Maybe I'm a cynic, or I've read too many books with a powerful cabal that lies while telling the truth. But one interpretation of these words is that you are going to be a test subject in that 'work it out' activity.
- nineplay 5y ago
  I wouldn't be surprised after all the hemming and hawing about how they don't have remote compensation numbers in place. "How much less can we pay people who don't live in SV? Let's bring a bunch of chumps in and low-ball them to find out."
  - hinkley 5y ago
    I think we underestimate the amount of self-deception that goes on with these deceptions. As evil as some people can be, I think more often we are just unwilling passengers on someone else's delusion. Waking up every day thinking that things aren't going to work out is hell. At some point you have to do something about it, or you can't keep going on. Hope doesn't care if it's objective or not, and evolution preserves it if it actually works slightly more than never.

qdog 5y ago

The problem is unless you hold onto the stock, you are not tied to the long-term growth of the company. I think this is really trying to optimize to keep only the high performers without having to have a traditional stack ranking system. Interestingly, I recall the Google article about the highest performing teams not being made up of the highest performing individuals, but the best communicators. No one seems to be trying to hire to create the best teams, but still just the highest performing individuals. Perhaps there is a Moneyball in tech work.

boldslogan 5y ago
one thing i think about, is hiring entire teams or groups at least of two to three instead of poaching just one person from a competitor/etc.
pvarangot 5y ago
> the highest performing teams not being made up of the highest performing individuals, but the best communicators Not saying this may not be like, true in the ontological sense... but as an experiment it's shitty because they measure performance by how good you are at communicating what you did and what impact it had.

tourist_on_road 5y ago

I sense greed on part of coinbase. If coinbase doesn't want to have 4 year vest schedule which makes up a significant portion of salary, Why don't they follow what netflix is doing and just give out salary as full base salary instead of any RSUs.

cddotdotslash 5y ago

Can we just link directly to the Coinbase post [1] instead of this 8-sentence blog spam? [1] https://blog.coinbase.com/how-coinbase-is-rethinking-its-approach-to-compensation-9aaf7d5d638e https://blog.coinbase.com/how-coinbase-is-rethinking-its-app...

elefanten 5y ago
Thanks. This was much more informative. For those wondering, they’re doing: -increasing comp targets to be at or above industry 75th percentile across the company -no negotiation for comp (standardized starting offer by location/role) -yearly stock grants with no 1 year cliff upon hire
- sokoloff 5y ago
  "75th percentile of industry" is almost meaningless. Does industry include programmers at Comcast, Liberty Mutual Insurance, Staples, Smalltown Bank, Wipro, and everyone else who employs programmers in any capacity? Or does it mean Amazon, Facebook, Netflix, and Google? If you're beating three out of those four, your comp is excellent. If you're beating 3 out of 4 all companies who hire programmers, you're hopelessly uncompetitive with the "actual" top tech market.
  - jacobr1 5y ago
    It is a named set of a peer SV companies. So probably FAANG, but they don't give specifics.
dang 5y ago
Hmm - turns out it had a thread here - https://news.ycombinator.com/item?id=27119787 https://news.ycombinator.com/item?id=27119787. We could re-up that one instead, but it's not very good. Normally I'd agree with you and merge the threads or similar—but I'm not sure I'd call this post blog spam. It's true that it doesn't go deep, but he's raising a general question that isn't quite the same thing as the OP.
988747 5y ago

lostdog 5y ago

Both this VC's post and coinbase's post ignore the 90-day exercise window on stock options, so they're getting rid of the "golden" but keeping the "handcuffs."

dalyons 5y ago
Well coinbase is RSUs now(and for quite awhile), so exercise window doesn’t apply

gkoberger 5y ago

This sounds employee-friendly, but it's total BS. You'll just be getting less equity at a higher strike price every year, so it's just a sneaky way for these companies to give employees less. They can still say "we're giving you $100k in stock this year", but it's a lot less stock since you're not locked into a strike price. If you want to leave after 1 year (post-cliff), you can leave under either scheme and get 1 year's worth of equity. This doesn't solve any "golden handcuff" problems, it just hurts employees.

whoisjuan 5y ago
Do you realize that Coinbase is now a public company? There’s no such a thing as strike price because their stock compensation is likely done through RSUs. Not stock options. Public companies issue an RSU grant at the beginning of employment and at no cost for the employee. Also if the share price goes below the grant date price, you’re likely recalibrated through rolling refreshers.
- deleted 5y ago
  [deleted]
- sologoub 5y ago
  Terminology aside, the general principle is still the same issue and employees ARE better of with 4 year grants in high growth companies. Let’s say you target RSU comp is $100k per year. Stock is $100 in year 1, $125 in year 2, $150 in year 3 and $200 in year 4. Ignoring inflation and taxes to make this easier to illustrate. 1) initial 4 year grant - $100k x 4 = $400k at $100/share is 4k shares. Assuming you keep all of your RSUs, you have $800k worth at year 4. 2) $100k of shares paid each year: year 1 - 1000 shares, year 2 - 800 shares, year 3 - 666.67 shares, year 4 - 500 shares. 4 year total comp in year 4 shares values is $593,334 So the employee receives $206.7k less under the new scheme versus the 4 year one. In reality, it’s even worse because we are talking high growth business here. Layering in annual refreshers helps as well, but this is where things generally plateau a bit.
  - deleted 5y ago
    [deleted]

codemac 5y ago

Huh? So now handcuffs with no gold? This is much worse for start up employees - as grants each year allow for even more dilution, management hand wringing, and changed expectations. Do founders stock get magically taken away when they suck at being a CEO? When deadlines are missed? Generally they just get moved to the board. The commitment you receive from your employees is HUGE. They show up 40+ hours a week, and bet their entire family and time on your company. Stop acting like somehow paying them even 0.1% as well as your founder is somehow a "bad marriage". If they're pulling down the team, fire them. If you're afraid they're making too much money and may quit / retire - why are you in capitalism at all? Ownership is supposed to provide benefits. The brazen attitude towards those that actually build your ivory tower is incredible.

ericjang 5y ago

My general rule of thumb is that if the new comp arrangement isn't better in an obvious, predictable way, then it probably isn't better for the employee. I think it would be good for Fred or Coinbase comp team to provide the expected payoff calculations for various kinds of employees under this new scheme - the hard numbers and probabilities (even optimistic ones) would be what convince me.

flashgordon 5y ago

I wonder if this is a good thing for "early-ish stage startups" in the long run? If all big-cos start doing this (and since the first few players have already folded I dont see a reason for the rest not to) this may end up standardizing pays with no upside for the employees. So finally the risk-taking employees have more of an incentive to found or join startups. May be even better, since this kind of greed is (possibly) a by-product of the size more of the startups will be motivated towards more realistic exits instead of growth for the sake of growth!

darod 5y ago

Is he misusing the definition for "golden handcuffs"? From my understanding, the issue is that an employee has 90 days to exercise one's options. Most can't afford to do so if the company isn't public due to the cost to exercise and the tax burden. I'm not sure how this new options structure addresses that.

itake 5y ago
There are many forms of golden handcuffs. Public companies gives you X dollars worth of shares at the current price of your start date over 4 years. Meaning if today the shares are worth $1 and they want to give you $100k of shares, then you get 100k shares over 4 years. If after 2 years, the unvested shares (50k) 3x in value, ($150k) you have to stay to continue to earn the same number of shares, but are worth 3x what they originally were.
compiler-guy 5y ago
The term isn't very precise, but is generally taken to mean "promised future compensation". The 90-day rule for exercising illiquid options absolutely is one form of promised future compensation, but so are future options clearly in the money, or even highly-appreciated real shares about to vest. So he isn't misusing the definition, just using the broadest possible sense of the term.
ska 5y ago
> Is he misusing the definition for "golden handcuffs"? No; in general "golden handcuffs" refer to any situation where future financial compensation counterbalances any desire to leave. You give one example, but there are lots of scenarios (it could as easily be pension qualification, or earn-out rights, or whatever).

TulliusCicero 5y ago

I don't see how 4-year stock grants that steadily vests are golden handcuffs at all, since if you switch to a similar company they'll just give you a new stock grant that also steadily vests. The only part that's like golden handcuffs is the 1-year cliff that's standard, but 1 year ain't bad.

rawtxapp 5y ago
More likely than not, your current stock has appreciated significantly (at least at FAANG), so you would be leaving all the paper gains on the table. And it's not guaranteed that you're getting vesting stock at the next company.
KaiserPro 5y ago
Depends on how big it is. For me, my base salary is quite enormous, but with some work I could find something within 20%. (I am exceptionally lucky, its not skill) However, what I can't replace is the stocks. Depending on performance its ~3-5 times my already vastly over inflated annual wage. So I'm stuck here at the boring FAANG company not achieving very much, because to walk away from a small fortune would be madness. There is no real incentive to work harder, because the difference between working a normal 35hour work week, and the 75 hour week required for promotion is another 10% on base.
- ghaff 5y ago
  Add to that the grass isn't always greener. If you've "lucked" into a really lucrative opportunity and you can do fine with sane working hours and a decent if not exciting environment, a lot of people would be advised to think hard and long before heading off.

smilekzs 5y ago

From the linked article on Coinbase's compensation ( https://blog.coinbase.com/how-coinbase-is-rethinking-its-approach-to-compensation-9aaf7d5d638e https://blog.coinbase.com/how-coinbase-is-rethinking-its-app... ): > Because our standard offers are world-class, we are officially eliminating negotiations on salary and equity from our recruiting process. > We are OK if we lose some candidates due to this decision — the best candidates for Coinbase are those who are looking for a highly competitive package and are ready to let their contributions speak for themselves. I'm sorry but that's a self-contradiction (even oxymoron). "highly competitive package" these days is after negotiation, period. If you're 100% firm on the offer when asked, then people seeking "highly competitive package" (after balancing all other factors of course) can and will simply walk. As for the "let their contributions speak for themselves": For (especially early stage) startups, any promise to raise the compensation later *cannot be trusted*, period. It's not written on your offer (except for maybe "guaranteed/target bonus"), and the management could always come up with "budgets" --- basically handing out far less than what would make up for the initial compensation deficit, maybe except for a few people in the "inner circle". Having been both in and out of the "inner circle" myself, this difference can be significant over time. Also as the startup goes through funding rounds, company policy will change and the people who "promised" you will inevitably leave, etc. etc.

alecbz 5y ago
On the one hand I want to agree, having to trust that a company will Definitely For Sure pay you more once you've earned it is a really hard pill to swallow. But on the other hand, it does seem off for so much of your compensation to be based on how well you perform in a five hour interview or how well negotiate it as opposed to your actual work.
- titanomachy 5y ago
  They also have the option of firing you quickly if it turns out that you're not as good as the interview led them to believe. You'd still get paid for the time you work, but they get the signing bonus back and get to keep all their equity.

smilekzs 5y ago

> the idea that an employee can’t leave because they would be giving up too much money if they do. This is part of the reason a cash-biased compensation package at a startup can be attractive. Effectively it places less coupling between your career path and financial success, which IMHO reduces unnecessary stress and gives you freedom to make the trade-off between these two at the time of _your convenience_, rather than some fixed number of months.

ralph84 5y ago

Don't piss on my shoes and tell me it's raining. Just say it: As an investor you want to keep more of the wealth employees create for you.

conjecTech 5y ago

This is horrific for employees. Ben Kuhn already nailed the math here[1]. The optionality embedded in long-dated grants is a huge fraction of total comp at high-growth companies and represent almost the entire right tail of outcomes. It also requires assumptions about the future, which is why companies generally abstain from quantifying what it's worth. It seems like the companies doing this are trying to arb that uncertainty by retaining all of the potential gain for themselves in exchange for a slightly larger nominal income. Don't do it. [1] https://www.benkuhn.net/optopt/ https://www.benkuhn.net/optopt/

analyst74 5y ago
This is no different from how Amazon does targeted compensation, where rising stock price means you get less/no refresher and raises, or all-cash comp at Netflix. It's catering to more risk-averse candidate pool.
- valdiorn 5y ago
  Having worked somewhere where I had a large deferred bonus, which I had to walk away from after the company turned hostile very quickly, I'd much, MUCH prefer to get my bonus paid out at the end of each year, vs. having it deferred, even if I have to take a hit on overall comp instead. You just can't estimate how compatible you and your employer will be 4 years in the future.
  - patrickmn 5y ago
    never even heard of that kind of bonus. it sounds like it's designed to work exactly this way.
- lumost 5y ago
  Amazon does targeted comp 2 years in the future. While in theory the company may act to make people whole in a given year. This will practically occur via dive and saves or truly exceptional circumstances such as the stock suddenly dropping 2-4x and new hire grants effectively becoming non-competitive.

compiler-guy 5y ago

"A bird in hand is worth two in a bush." This seems to make long-term ccompensation even more volatile. Who says the company will grant me a similar options package all 4-years. Business needs change, and it might do any of a million other things. Sure, the stock-price may go up, or may fall, but that is somewhat out of the day-to-day control of the company. Or it is much more out of the company's control than next year's personnel budget, where you just have to convince the CFO of what the right grant value will be.

Trumpi 5y ago

If my base salary is competitive, and I get vesting grants on top of that, then I don't see it as a bad thing. If the vesting grants are an excuse to underpay me, then that is a bad thing. An employer's perspective is different to mine, and some companies cannot compete by offering grants. This is probably what this article is really about.

mattpratt 5y ago

Reminds me of a16z's "dead equity" blogpost, largely revolving around employees with lingering options who no longer contributed their "fair share". https://a16z.com/2016/06/23/options-timing/ https://a16z.com/2016/06/23/options-timing/ > Well, not exactly. There is a more fundamental issue at the > heart of this seemingly good solution: A 10-year exercise > window is really a direct wealth transfer from the employees > who choose to remain at the company and build future > shareholder value, to former employees who are no longer > contributing to building the business/ its ultimate value. But not mentioned in either is that these long running exercise windows "hurt" _all_ shareholders, especially investors. Nice of both to make this about the little man/woman. I only wish their worth and value to the company was met with the same scrutiny they seem to give employees.

alecbz 5y ago

I feel like you only need to read into this a _tiny_ bit to see how weird it sounds: > It sucks that people might want to leave a company but won't because of how well they pay, so we decided to stop paying so well! Problem solved! It'd be one thing if the comp was adjusted somehow to make up for the loss of extra upside. (Some companies switching to 1-year grants seem to be saying they're going down this route). But just cutting the grant length is literally just a comp decrease. (Which, of course, makes it easier to leave).

deleted 5y ago

[deleted]

zuhayeer 5y ago

Some more on single year equity grants here: https://www.levels.fyi/blog/one-year-equity-grants-vesting-schedule.html https://www.levels.fyi/blog/one-year-equity-grants-vesting-s... This seems like something more later stage, high growth companies are adopting. It’s simply much cheaper for the company to give out single year grants. Basically a challenge to the whole "rest and vest" culture.

ec109685 5y ago

I don’t get this spin. In the old way, you had golden handcuffs because your stock had appreciated so much, it made financial sense to stick around until your options fully vested. In the new way, all that potential upside comp is eliminated, so employees will earn less and feel better about leaving. Seems like first option is far better for employees. Please give me those golden handcuffs. This was also the best way for normal employees to “strike it rich”, which isn’t a bad thing.

colin_mccabe 5y ago

A lot of companies stop issuing stock options when they get to a certain size. Part of the thinking is that the company is now a "safe bet" so there's no need to give employees a potentially large upside in exchange for staying around. Another reason for doing this is that stock options don't work well when the stock price (and company valuation) is already high. You end up with a big tax bill betting on growth that often doesn't come for already-highly-valued companies. You could spin this as being employee-friendly, but it's more about being pragmatic about the fact that the company probably won't be able to 10x its valuation like in the old days, and now views itself as "safer."

URSpider94 5y ago

After thinking about this, I think they’ve created a false dichotomy here. As an employee who is heavily compensated with stock, I’ve experienced “golden handcuffs,” where my annual compensation, including vesting shares, is much higher than what the company, or any other rational employer, would have paid me that year. The only way to fix this would be … to pay me less by not granting me restricted shares for so far into the future. Net-net, the enterprise will shell out less money in compensation under this plan. I can see why companies don’t like this situation, because it’s very hard to reward performance with compensation when everyone is making far more than scale. Your best and worst performers all take home big checks. But to pitch this as an employee-friendly move is gaslighting at its worst.

6gvONxR4sf7o 5y ago

I feel like four year stock grants, more than anything else, are responsible for the upwards wage pressure that has led to the high pay in the Silicon Valley tech scene. You come in earning $X and a few years later you’re earning $2X without needing a promotion. Now if another company wants to steal you away they have to offer starting comp to match your golden handcuffs. Reduced golden handcuffs can only hurt the rank and file labor market. No surprise a VC is enthusiastic about it.

lumost 5y ago

As an employee this opens a few uncomfortable discussions. If your comp is heavy on equity, you may find yourself facing a paycut next year. For many engineers this could easily be a sudden 50% paycut during performance reviews. If a company chooses not to refresh your grant at the same level in 2-3 years time, then you'll have had plenty of warning to leave or for you and the company to figure things out. The problem with a 1 year grant is that it provides an unstable compensation target, for a public company most employees will prefer cash to shares that may be up or down 15% at year end.

dasil003 5y ago

Okay, reality check: the most substantive part of this change is shifting 4-year vest to 1-year vest. This means 75% of the upside an employees stock compensation is taken away. That's the main effect here. The rest of the talk about percentile pay comp targets among peer companies is rounding error by comparison. If FAANG had adopted this structure over the last 13 years, understand the number of rank and file engineers that became millionaires would have been reduced by an order of magnitude or more. This is just another way for VCs and finance in general to use their knowledge and positioning to skim all the upside on fast-growing companies. It's one thing for a company to change their compensation policy and spin it in the best possible light—I don't like it, but it's just one company and I can at least hope the market teaches them a lesson. However for a VC like Fred Wilson to try to paint this as an unequivocal good is disgusting. Essentially this "golden handcuffs" argument is saying that rank and file employees who earn above market due to betting their labor long-term on a single company are a risk that should not be allowed.

einpoklum 5y ago

> We operate in an open market for talent. Don't you just love it when you're treated as a commodity in a market? > we ... expect them to earn their seat at Coinbase. So, I'm working someplace, I'm always under threat of termination and have to prove, repeatedly, that my seat shouldn't be taken from under me. Of course, the owners of coinbase don't have to earn their seats every year, or any year, right? At this point I would make a derisive comment about Capitalism, but to be honest - the company's business is financial speculation with made-up currency, so I guess that's to be expected.

almost_usual 5y ago

No desire to invest in Coinbase or work there.

kerng 5y ago

No one year cliff good. New grant (assuming with new price) every year is a joke. Potential for rapid wealth growth is the reason many work for a startup in first place.

zuhayeer 5y ago

If this is so good, why not switch your old employees on the 4 year grants to it?