4 ms·

Compensation that can't be traded for cash should be valued quite close to zero, regardless of the length of the exercise window.

bradleyjg 5y ago
Revealed preferences indicate equity compensation isn’t valued by would-be-employees at “quite close to zero” even if you think they ought to. I think start ups would be very willing to throw in an extra $5 and skip the equity grant if that’s what employees wanted.
- giantg2 5y ago
  And people don't value lottery tickets at zero, eventhough most of them end up worthless too. It's the betting mindset of the individual that determines if one values these types of items.
  - bradleyjg 5y ago
    There’s a fine line between warning people if something they might not be aware of and being a scold because other people happen to value things differently than you do.
- dhosek 5y ago
  There's a lot of hope that goes into this. I have never had a stock option that was worth anything in the course of my career.¹ I stopped counting that as a factor long ago. 1. I can actually go one better on that. I worked at one company that had a "can't lost" stock purchase program. You put aside money with each paycheck and you would get stock purchased at the lower of the price at the beginning of the year and the end of the year with a 10% discount. Of course in the time between when the shares were purchased at the beginning of January and when they were delivered at the end of January, the stock fell 50%. They never recovered their value and I ended up getting cashed out when the company that bought them went private at around 10 cents on the dollar.
  - dap 5y ago
    This happened to me too! Only it was a large public company. Employee stock purchase plan was 10-15% discount. Between Thursday afternoon purchase and Friday delivery of shares, company announced earnings and shares dropped like 20%.
  - azhenley 5y ago
    Employee stock purchase plans are different than stock options.
    - dhosek 5y ago
      I am well aware of that. My point is that these non-cash compensation plans have inherent risks.
- nerdponx 5y ago
  Is it really revealed preference? Or lack of choices? Or people being misled?
  - bradleyjg 5y ago
    I don’t think it’s lack of choice. Any dev that can land a job at a VC backed start up could probably get a job at a dinosaur and sometimes a public tech company (i.e. FAANG+). I do think there’s an element of being misled, but less so than there used to be. We’ve now had twenty plus years of industry veterans grumbling on the internet about being screwed by equity. The info is out there. Sometimes people just want to roll the dice. It isn’t up to us to tell them they can’t want that.
mattgreg 5y ago
It's a 'feature' of a startup. You become an investor in the company. The other option is to work at a public company, where stock is liquid. They aren't really comparable, and a preference for one or the other is personal choice. Both are correct answers.
- brianwawok 5y ago
  A lot depends on pay. If your startup pay is identical to your public pay (say 2 competing job offers), you paid $0 for some amount of options. Now if your pay is 25% down, you paid 25% of your salary for those options.. +/- a slightly different lifestyle and feel for the company, which is interesting to many.
- RhysU 5y ago
  A stock option is the right to become an investor at, hopefully, a preferential price assuming that, hopefully, the option is still exercisable. Both legally and based upon your personal circumstances in the future. In contrast, a true and immediate equity grant is becoming an investor. People like to fuzz these concepts but they are different in principle.

bradleyjg 5y ago

Revealed preferences indicate equity compensation isn’t valued by would-be-employees at “quite close to zero” even if you think they ought to. I think start ups would be very willing to throw in an extra $5 and skip the equity grant if that’s what employees wanted.

giantg2 5y ago
And people don't value lottery tickets at zero, eventhough most of them end up worthless too. It's the betting mindset of the individual that determines if one values these types of items.
- bradleyjg 5y ago
  There’s a fine line between warning people if something they might not be aware of and being a scold because other people happen to value things differently than you do.
dhosek 5y ago
There's a lot of hope that goes into this. I have never had a stock option that was worth anything in the course of my career.¹ I stopped counting that as a factor long ago. 1. I can actually go one better on that. I worked at one company that had a "can't lost" stock purchase program. You put aside money with each paycheck and you would get stock purchased at the lower of the price at the beginning of the year and the end of the year with a 10% discount. Of course in the time between when the shares were purchased at the beginning of January and when they were delivered at the end of January, the stock fell 50%. They never recovered their value and I ended up getting cashed out when the company that bought them went private at around 10 cents on the dollar.
- dap 5y ago
  This happened to me too! Only it was a large public company. Employee stock purchase plan was 10-15% discount. Between Thursday afternoon purchase and Friday delivery of shares, company announced earnings and shares dropped like 20%.
- azhenley 5y ago
  Employee stock purchase plans are different than stock options.
  - dhosek 5y ago
    I am well aware of that. My point is that these non-cash compensation plans have inherent risks.
nerdponx 5y ago
Is it really revealed preference? Or lack of choices? Or people being misled?
- bradleyjg 5y ago
  I don’t think it’s lack of choice. Any dev that can land a job at a VC backed start up could probably get a job at a dinosaur and sometimes a public tech company (i.e. FAANG+). I do think there’s an element of being misled, but less so than there used to be. We’ve now had twenty plus years of industry veterans grumbling on the internet about being screwed by equity. The info is out there. Sometimes people just want to roll the dice. It isn’t up to us to tell them they can’t want that.

mattgreg 5y ago

It's a 'feature' of a startup. You become an investor in the company. The other option is to work at a public company, where stock is liquid. They aren't really comparable, and a preference for one or the other is personal choice. Both are correct answers.

brianwawok 5y ago
A lot depends on pay. If your startup pay is identical to your public pay (say 2 competing job offers), you paid $0 for some amount of options. Now if your pay is 25% down, you paid 25% of your salary for those options.. +/- a slightly different lifestyle and feel for the company, which is interesting to many.
RhysU 5y ago
A stock option is the right to become an investor at, hopefully, a preferential price assuming that, hopefully, the option is still exercisable. Both legally and based upon your personal circumstances in the future. In contrast, a true and immediate equity grant is becoming an investor. People like to fuzz these concepts but they are different in principle.