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(Preface: IANAL) Only worth it if you aren’t early. ISOs provide preferential tax treatment, and early on are usually very very cheap, so many companies (mine
by borski 5y ago
(Preface: IANAL)
Only worth it if you aren’t early. ISOs provide preferential tax treatment, and early on are usually very very cheap, so many companies (mine included) also offer early exercise with ISOs, which is an unbeatable tax win (afaik).
The issue occurs when options get expensive (aka the company is doing well) and then you have to do the math between ISOs or NSOs. The longer expiration may be better, but certainly not for every employee.
That said, as companies get bigger they stop being able to offer as many ISOs (there is a max cap), so at that point they should extend the timeline for expiration.
One thing companies do have to worry about though: a 10-year expiration means your cap table is in flux for 10 years, potentially, which makes calculations, acquisitions, etc, tougher.
- fishtoaster 5y agoWouldn't that only be an issue if a company offers NSOs instead of ISOs? What I've seen in the past is "here's some ISOs, they automatically convert to NSOs 90 days after you leave." That way you get all the benefits of an ISO (tax on sale) while you work there, then all the benefits of an NSO (doesn't disappear in a puff of smoke at day 90). Seems like strictly a win, regardless of company phase.
- rileymat2 5y agoIt not a win for a company that hires people who would not understand enough to value this rather obscure treatment. In the current system a lot of options get clawed back to the company's benefit from an inability or unwillingness to take the risk of exercising. It is no coincidence that this very simple modification is not too widespread.
- sk5t 5y ago> a 10-year expiration means your cap table is in flux for 10 years, potentially, which makes calculations, acquisitions, etc, tougher I don't agree at all. The primary effect of a longer exercise window is in not returning expired options hastily to the pool. Otherwise what's the difference if the employee continues to be an employee and doesn't yet-- ceteris paribus--need to exercise or forfeit. Why do you suggest unexercised options of any stripe muddy the waters? If the option is worth anything at all it will be exercised at a liquidity event.
- hn_throwaway_99 5y agoAs others have said, the options are issued as ISOs which automatically convert to NSOs after 90 days after leaving the company.