7 ms·

This is good progress. Just two months ago I declined an offer from a known and well funded startup because of a one year cliff on equity. The recruiter didn'

by kerng 5y ago

This is good progress. Just two months ago I declined an offer from a known and well funded startup because of a one year cliff on equity. The recruiter didn't seem to be able to discuss this matter and I asked them to make sure to bubble this sort of thing up their food chain. I never heard back afterwards. As an "old timer" in the industry a one year cliff makes absolutely no sense to me. Its like working for credit, which seems very backwards.

draw_down 5y ago
I suppose in principle, but in practice I want to be around longer than a year anyway. After a year it’s a wash.
MattGaiser 5y ago
I am so fascinated at how my grandfather would spend decades at a company, my Dad would spend a decade, and now people decline jobs over the expectation that they stay 1 year. And I was in my first job 51 weeks. I don't think you are wrong in doing so as the market in tech moves fast while employers move like slugs, it is just such a shift from what I grew up to expect.
- endtime 5y ago
  The problem isn't necessarily that the employee expects to want to leave in under a year, so much as they don't want the company to have an incentive to let them go in under a year.
  - quelltext 5y ago
    Now they'd have an incentive to let them go in under a quarter, by that logic. Not sure if that's really their concern here. Companies don't just ditch reasonably well performing employees because they want to avoid compensating them. That would already mean that each time RSUs vest the company would have an incentive to fire.
    - dodobirdlord 5y ago
      Sure, and they do. It’s best to avoid that incentive by having stock grants vest frequently and fractionally. It’s essentially treated as salary, it might as well be paid out fractionally at the same frequency as salary so that no perverse incentives exist.
    - ErikVandeWater 5y ago
      This isn't complicated. If an employee is having a bad first year or the company is performing poorly it incentivizes firing.
    - wpietri 5y ago
      Much less so, because productivity is low in the first few months.
  - achow 5y ago
    Hiring is one of the most time sucking activity, and the whole notion of stocks/RSUs is to make people stay.
    - MattGaiser 5y ago
      Companies sure don't act that way given that people generally need to leave for a raise.
  - fragmede 5y ago
    That's fascinating reasoning. It makes sense, but that's the same sort of logic where employers will give hourly employees 39.5 hours a week because if you give them 40 they become "full time". Has that kind of short sighted thinking really invaded the software engineering industry? That's scary.
    - ErikVandeWater 5y ago
      Why would avoiding paying employees benefits be short-sighted thinking? If anything it was short sighted of the US government to ban increased wages during WWII - leading to employers paying benefits which gums up the labor market.
      - wpietri 5y ago
        It's short-sighted because employees are humans, which perform much better when healthy and excited to work. Stingy/hostile employers have high turnover and employees who treat work as a zero or negative sum game. A good example of this is the This American Life story on NUMMI: https://www.thisamericanlife.org/561/nummi-2015 https://www.thisamericanlife.org/561/nummi-2015 Toyota took one of GM's worst plants and turned it into one of its best by treating workers with respect. Hearing the workers talk about the transformation stunned me.
        qqtt 5y ago
        Employers are also human, and prone to the fallible traps of responsibility that befall many people managers and executives, including but not limited too: * not trusting your team to do their work and by extension questioning whether they are working "hard enough" (or dreaming of ways to extract more blood from stones) * some flavor of impostor syndrome, needing to prove your value by making sweeping changes to the team process even if inheriting a successful team * not having either the back bone or clout to question status quo, including demoralizing cultural habits such as stack ranking There is a reason the majority of employers (including managers) are generally bad and the good ones are few and far between - it's human nature. I'm reminded of Microsoft Japan piloting a 4 day work week and announcing in 2019 that the trial ended up increasing productivity by 40%. They ended up not making the change permanent. One small company in New Zealand - Perpetual Guardian - did the same trial in 2018 and saw the same effect, they made it permanent. Most companies operate like Microsoft.
  - riffraff 5y ago
    Do companies really fire people at week 51 to save some stock? Hiring is tough and you waste a lot of time onboarding people and getting them to a productive state, firing them just to save some stock after 50 weeks seems a bad idea, not to mention the morale implications.
    - yroc92 5y ago
      Happened to me.
      - nsonha 5y ago
        How do you know that was the reason?
      - nsonha 5y ago
        Downvoted for asking a question?
    - ramphastidae 5y ago
      It absolutely happens. I worked as an early employee at a company for its first 11 months … the founder was the main investor and a serial entrepreneur. He clashed with the CTO from the start and progress stalled … after a major disagreement, he decided he would rather sell the company to a competitor than continue to deal with the CTO. At the 11 month mark we were all told that we were fired, the company was shutting down, and and if we wanted severance, we’d have to sign away our rights to any claims from the sale.
    - mathattack 5y ago
      Companies do let people go to avoid granting stock. Banks also do it to stiff employees on their bonus. For startups it’s a forcing function to decide if they want to keep someone. (I’m not saying this is right, just explaining why it happens)
  - ericpruitt 5y ago
    Something I don't see mentioned in the sibling comments is that this can also put the employee in a bad position when they don't like their job but are in the mid to late stages if their first year. You either tough it out the remaining _X_ months or quit and take a huge hit in income because you're leaving before the equity cliff.
    - celticninja 5y ago
      I could see that with a 2-5 year cliff but 12 months is not a long time in a job.
      - ericpruitt 5y ago
        I wrote "... when they *don't like their job* but are in the *mid to late stages* ..." so in this case, it'd be 3 to 6 months which isn't a long time to hold a job in general, but it is a long time when you hate your job.
- Cerium 5y ago
  Things are very different in a field with long product cycles. If it takes 5 years to get a product into the field then the company has a huge incentive to retain employees.
  - throwaway09223 5y ago
    Sure, but if you're depending on the cliff for retention you're working against your own interests: Employees will leave the 53rd week, just after you've spent all that effort training them within your environment. Long term retention hinges on long term adequate compensation and long term quality environments. There's no need for cliffs.
    - Cerium 5y ago
      Sure, there is no need for a cliff, but if you are attracting the right talent with adequate compensation (that keeps up with market changes!) the cliff does not matter.
      - kerng 5y ago
        How can you attract the right talent when competing with companies, like Google, Amazon (with their cash bonus payment model to compensate their weird back weighted RSUs) or Netflix being able to hand out offers without any of these risks? An engineer with family is unlikely to take such a risk and rather join Google or even Amazon where compensation is guaranteed.
- deleted 5y ago
  [deleted]
- bogomipz 5y ago
  I thought the OP meant that since most of the time startups want you to sell you on taking less in salary in lieu of options it makes sense to start vesting those options immediately. I didn't take it to mean that they didn't intend to stay for at least a year. Looking at it that way I think it does make sense. The lower salary take place immediately.
- deleted 5y ago
  [deleted]
- ec109685 5y ago
  It also smooths out when people leave by spreading grants out. Some companies have stock grants vest and bonus payout all at once, once per year.
- toomanybeersies 5y ago
  I was in a meeting the other day where one of the attendees had been working at the company for 20 years and another for 15. By my guess, I reckon people work here for about 7 years on average before moving on. In my experience, people tend to be either lifers and stay for 10+ years, or bounce between jobs every year or two. Lifers tend to accumulate in companies that cater towards them (good work/life balance and job security) due to low employee turnover, so if you're in the other group, it appears that everyone in the industry only works for a year.
  - rightbyte 5y ago
    I believe this is right. Also, bad companies with high attrition like eg. Amazon hire alot more (hires/FTE/year). So you have a higher chance ending up at such places then their share of all companies. I mean, average tenure is probably the best indication of how good a employeer is (unless there are few companies at a location). I was pretty suprised to hear it was 2 years at Google.
- hintymad 5y ago
  There's shift of context too. In our grandparents' generation, companies also promised to keep the workers around and sometimes to give them pension. There would be a steady career path based on seniority as well. Something along the lines of that you take of the company and we will take care of you. None of such promises exists nowadays.
jamiequint 5y ago
"I declined an offer from a known and well funded startup because of a one year cliff on equity" You might as well not bother interviewing at any startups if this is a deal-breaker for you. Whether you think it's fair or not this is an extremely standard term and no company is going to alter their employee stock grants on a one-off basis.
- spotman 5y ago
  Not really true. Have achieved multiple companies removing the 1 year cliff for me.
  - brutus1213 5y ago
    The one year cliff is not that problematic to me since I would expect I am getting paid market, and the options are like a hiring bonus (which you often must return if you quit within a year). What am I missing? Is people really worried that a startup whose stock has risen will fire a productive employee? That said, I have seen 5 year vesting (which seemed like a red flag to me), and have heard of Amazon's schedule where you mainly vest in later years. These were bigger red flags for me than a 1 year cliff.
    - danielheath 5y ago
      I feel like amazon-style vesting helps remove some perverse incentives. It makes "stay 53 weeks and cash out" less appealing, it makes "stay 6 more months to hit the next cliff" less appealing, and it rewards long-haulers (who are underpaid almost everywhere else in tech).
      - joshuamorton 5y ago
        To be fair, they're also underpaid at amazon.
    - glenngillen 5y ago
      Disclaimer: Ex-Amazonian, so discount as you see fit based on whatever brainwashing you might assume I’ve been subjected to ;) The rear weighted AMZN approach made sense to me in terms of both optimising retention and some proxy for reward to contribution. I say this also as someone who left after 2 years and as a result left most of their stock unvested. It definitely made the choice to leave much harder so I’d expect it to skew more heavily toward retention benefits than a typical schedule. A typical schedule has a linear growth of what you’ve vested. I’d expect the value of contribution of a person to grow over time though. More context, more experience, more everything. Hopefully that means the you 3 years from now is making a more significant contribution than the you they hired. Typical schedules hope that the increase in valuation accounts for that compounding return. AMZN have shifted it to the vesting schedule. That said they always talk about “total compensation”. So for the stock you’re not getting in the first two years you typically get as cash via a “hiring bonus” anyway. You could always just use that cash to go buy the equivalent amount in stock, no vesting required.
tedmiston 5y ago
A 1-year cliff / 4-year vest has been standard as long as I remember. Is this not the case anymore?
- asdfasgasdgasdg 5y ago
  It is the case, but it seems like it only persists because it is traditional. I'm not aware of any basis by which the employees should be willing to accept deferred comp for the first year. It sets up all kinds of bad incentives.
  - tedmiston 5y ago
    I'm right here with you — along with having standard very long exercise windows… 10 years or whatnot. I've both chosen to exercise and not exercise on a short 30-day window but balancing FOMO vs future regret is hard with the volatility of a typical startup.
- kerng 5y ago
  No, most big companies don't have cliffs anymore (Google, Facebook, etc...). They pay out monthly or quaterly. At least if you already worked for a while elsewhere (because they have to buy you out basically). Why would you otherwise take the risk? I'm curious about Microsoft- anyone know if Microsoft has a cliff on RSUs?
  - reasonabl_human 5y ago
    My non-new-grad employment with Microsoft had a 1yr vesting cliff. As others have previously mentioned, as long as it’s an established company I see no issue with this since you get a solid signing bonus if continued cash flow is the concern.
    - kerng 5y ago
      This is to the point - cash bonus can compensate this somewhwat. And cash bonus typically doesnt have to be paid back in case of layoff.
t0mbstone 5y ago
I worked at a startup and took a salary reduction in exchange for stock options with a one year cliff. After busting my butt, often working 12 hour days for 9 months, they fired me without cause. Because I hadn't quite worked there for a whole year yet, I didn't get any of my stock options. I will NEVER make that mistake again.

by kerng 5y ago

draw_down 5y ago

I suppose in principle, but in practice I want to be around longer than a year anyway. After a year it’s a wash.

MattGaiser 5y ago

I am so fascinated at how my grandfather would spend decades at a company, my Dad would spend a decade, and now people decline jobs over the expectation that they stay 1 year. And I was in my first job 51 weeks. I don't think you are wrong in doing so as the market in tech moves fast while employers move like slugs, it is just such a shift from what I grew up to expect.

endtime 5y ago
The problem isn't necessarily that the employee expects to want to leave in under a year, so much as they don't want the company to have an incentive to let them go in under a year.
- quelltext 5y ago
  Now they'd have an incentive to let them go in under a quarter, by that logic. Not sure if that's really their concern here. Companies don't just ditch reasonably well performing employees because they want to avoid compensating them. That would already mean that each time RSUs vest the company would have an incentive to fire.
  - dodobirdlord 5y ago
    Sure, and they do. It’s best to avoid that incentive by having stock grants vest frequently and fractionally. It’s essentially treated as salary, it might as well be paid out fractionally at the same frequency as salary so that no perverse incentives exist.
  - ErikVandeWater 5y ago
    This isn't complicated. If an employee is having a bad first year or the company is performing poorly it incentivizes firing.
  - wpietri 5y ago
    Much less so, because productivity is low in the first few months.
- achow 5y ago
  Hiring is one of the most time sucking activity, and the whole notion of stocks/RSUs is to make people stay.
  - MattGaiser 5y ago
    Companies sure don't act that way given that people generally need to leave for a raise.
- fragmede 5y ago
  That's fascinating reasoning. It makes sense, but that's the same sort of logic where employers will give hourly employees 39.5 hours a week because if you give them 40 they become "full time". Has that kind of short sighted thinking really invaded the software engineering industry? That's scary.
  - ErikVandeWater 5y ago
    Why would avoiding paying employees benefits be short-sighted thinking? If anything it was short sighted of the US government to ban increased wages during WWII - leading to employers paying benefits which gums up the labor market.
    - wpietri 5y ago
      It's short-sighted because employees are humans, which perform much better when healthy and excited to work. Stingy/hostile employers have high turnover and employees who treat work as a zero or negative sum game. A good example of this is the This American Life story on NUMMI: https://www.thisamericanlife.org/561/nummi-2015 https://www.thisamericanlife.org/561/nummi-2015 Toyota took one of GM's worst plants and turned it into one of its best by treating workers with respect. Hearing the workers talk about the transformation stunned me.
      - qqtt 5y ago
        Employers are also human, and prone to the fallible traps of responsibility that befall many people managers and executives, including but not limited too: * not trusting your team to do their work and by extension questioning whether they are working "hard enough" (or dreaming of ways to extract more blood from stones) * some flavor of impostor syndrome, needing to prove your value by making sweeping changes to the team process even if inheriting a successful team * not having either the back bone or clout to question status quo, including demoralizing cultural habits such as stack ranking There is a reason the majority of employers (including managers) are generally bad and the good ones are few and far between - it's human nature. I'm reminded of Microsoft Japan piloting a 4 day work week and announcing in 2019 that the trial ended up increasing productivity by 40%. They ended up not making the change permanent. One small company in New Zealand - Perpetual Guardian - did the same trial in 2018 and saw the same effect, they made it permanent. Most companies operate like Microsoft.
- riffraff 5y ago
  Do companies really fire people at week 51 to save some stock? Hiring is tough and you waste a lot of time onboarding people and getting them to a productive state, firing them just to save some stock after 50 weeks seems a bad idea, not to mention the morale implications.
  - yroc92 5y ago
    Happened to me.
    - nsonha 5y ago
      How do you know that was the reason?
    - nsonha 5y ago
      Downvoted for asking a question?
  - ramphastidae 5y ago
    It absolutely happens. I worked as an early employee at a company for its first 11 months … the founder was the main investor and a serial entrepreneur. He clashed with the CTO from the start and progress stalled … after a major disagreement, he decided he would rather sell the company to a competitor than continue to deal with the CTO. At the 11 month mark we were all told that we were fired, the company was shutting down, and and if we wanted severance, we’d have to sign away our rights to any claims from the sale.
  - mathattack 5y ago
    Companies do let people go to avoid granting stock. Banks also do it to stiff employees on their bonus. For startups it’s a forcing function to decide if they want to keep someone. (I’m not saying this is right, just explaining why it happens)
- ericpruitt 5y ago
  Something I don't see mentioned in the sibling comments is that this can also put the employee in a bad position when they don't like their job but are in the mid to late stages if their first year. You either tough it out the remaining _X_ months or quit and take a huge hit in income because you're leaving before the equity cliff.
  - celticninja 5y ago
    I could see that with a 2-5 year cliff but 12 months is not a long time in a job.
    - ericpruitt 5y ago
      I wrote "... when they *don't like their job* but are in the *mid to late stages* ..." so in this case, it'd be 3 to 6 months which isn't a long time to hold a job in general, but it is a long time when you hate your job.
Cerium 5y ago
Things are very different in a field with long product cycles. If it takes 5 years to get a product into the field then the company has a huge incentive to retain employees.
- throwaway09223 5y ago
  Sure, but if you're depending on the cliff for retention you're working against your own interests: Employees will leave the 53rd week, just after you've spent all that effort training them within your environment. Long term retention hinges on long term adequate compensation and long term quality environments. There's no need for cliffs.
  - Cerium 5y ago
    Sure, there is no need for a cliff, but if you are attracting the right talent with adequate compensation (that keeps up with market changes!) the cliff does not matter.
    - kerng 5y ago
      How can you attract the right talent when competing with companies, like Google, Amazon (with their cash bonus payment model to compensate their weird back weighted RSUs) or Netflix being able to hand out offers without any of these risks? An engineer with family is unlikely to take such a risk and rather join Google or even Amazon where compensation is guaranteed.
deleted 5y ago
[deleted]
bogomipz 5y ago
I thought the OP meant that since most of the time startups want you to sell you on taking less in salary in lieu of options it makes sense to start vesting those options immediately. I didn't take it to mean that they didn't intend to stay for at least a year. Looking at it that way I think it does make sense. The lower salary take place immediately.
deleted 5y ago
[deleted]
ec109685 5y ago
It also smooths out when people leave by spreading grants out. Some companies have stock grants vest and bonus payout all at once, once per year.
toomanybeersies 5y ago
I was in a meeting the other day where one of the attendees had been working at the company for 20 years and another for 15. By my guess, I reckon people work here for about 7 years on average before moving on. In my experience, people tend to be either lifers and stay for 10+ years, or bounce between jobs every year or two. Lifers tend to accumulate in companies that cater towards them (good work/life balance and job security) due to low employee turnover, so if you're in the other group, it appears that everyone in the industry only works for a year.
- rightbyte 5y ago
  I believe this is right. Also, bad companies with high attrition like eg. Amazon hire alot more (hires/FTE/year). So you have a higher chance ending up at such places then their share of all companies. I mean, average tenure is probably the best indication of how good a employeer is (unless there are few companies at a location). I was pretty suprised to hear it was 2 years at Google.
hintymad 5y ago
There's shift of context too. In our grandparents' generation, companies also promised to keep the workers around and sometimes to give them pension. There would be a steady career path based on seniority as well. Something along the lines of that you take of the company and we will take care of you. None of such promises exists nowadays.

jamiequint 5y ago

"I declined an offer from a known and well funded startup because of a one year cliff on equity" You might as well not bother interviewing at any startups if this is a deal-breaker for you. Whether you think it's fair or not this is an extremely standard term and no company is going to alter their employee stock grants on a one-off basis.

spotman 5y ago
Not really true. Have achieved multiple companies removing the 1 year cliff for me.
- brutus1213 5y ago
  The one year cliff is not that problematic to me since I would expect I am getting paid market, and the options are like a hiring bonus (which you often must return if you quit within a year). What am I missing? Is people really worried that a startup whose stock has risen will fire a productive employee? That said, I have seen 5 year vesting (which seemed like a red flag to me), and have heard of Amazon's schedule where you mainly vest in later years. These were bigger red flags for me than a 1 year cliff.
  - danielheath 5y ago
    I feel like amazon-style vesting helps remove some perverse incentives. It makes "stay 53 weeks and cash out" less appealing, it makes "stay 6 more months to hit the next cliff" less appealing, and it rewards long-haulers (who are underpaid almost everywhere else in tech).
    - joshuamorton 5y ago
      To be fair, they're also underpaid at amazon.
  - glenngillen 5y ago
    Disclaimer: Ex-Amazonian, so discount as you see fit based on whatever brainwashing you might assume I’ve been subjected to ;) The rear weighted AMZN approach made sense to me in terms of both optimising retention and some proxy for reward to contribution. I say this also as someone who left after 2 years and as a result left most of their stock unvested. It definitely made the choice to leave much harder so I’d expect it to skew more heavily toward retention benefits than a typical schedule. A typical schedule has a linear growth of what you’ve vested. I’d expect the value of contribution of a person to grow over time though. More context, more experience, more everything. Hopefully that means the you 3 years from now is making a more significant contribution than the you they hired. Typical schedules hope that the increase in valuation accounts for that compounding return. AMZN have shifted it to the vesting schedule. That said they always talk about “total compensation”. So for the stock you’re not getting in the first two years you typically get as cash via a “hiring bonus” anyway. You could always just use that cash to go buy the equivalent amount in stock, no vesting required.

tedmiston 5y ago

A 1-year cliff / 4-year vest has been standard as long as I remember. Is this not the case anymore?

asdfasgasdgasdg 5y ago
It is the case, but it seems like it only persists because it is traditional. I'm not aware of any basis by which the employees should be willing to accept deferred comp for the first year. It sets up all kinds of bad incentives.
- tedmiston 5y ago
  I'm right here with you — along with having standard very long exercise windows… 10 years or whatnot. I've both chosen to exercise and not exercise on a short 30-day window but balancing FOMO vs future regret is hard with the volatility of a typical startup.
kerng 5y ago
No, most big companies don't have cliffs anymore (Google, Facebook, etc...). They pay out monthly or quaterly. At least if you already worked for a while elsewhere (because they have to buy you out basically). Why would you otherwise take the risk? I'm curious about Microsoft- anyone know if Microsoft has a cliff on RSUs?
- reasonabl_human 5y ago
  My non-new-grad employment with Microsoft had a 1yr vesting cliff. As others have previously mentioned, as long as it’s an established company I see no issue with this since you get a solid signing bonus if continued cash flow is the concern.
  - kerng 5y ago
    This is to the point - cash bonus can compensate this somewhwat. And cash bonus typically doesnt have to be paid back in case of layoff.

t0mbstone 5y ago

I worked at a startup and took a salary reduction in exchange for stock options with a one year cliff. After busting my butt, often working 12 hour days for 9 months, they fired me without cause. Because I hadn't quite worked there for a whole year yet, I didn't get any of my stock options. I will NEVER make that mistake again.