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Sadly, going for equity in these scenarios is a mine field and almost never as profitable as advertised by the employer.
by bitcharmer 5y ago
Sadly, going for equity in these scenarios is a mine field and almost never as profitable as advertised by the employer.
- Jensson 5y agoGetting $100k sticker price worth of stocks per year is worth about $100k a year. If stocks go up they are worth more, otherwise less. On average they will be worth more than cash, and for a big company it is rare for them to go down a lot, so I'd say that getting the $100k worth of stocks a year is at least as good as just getting the cash. Edit: Not sure why people think otherwise. Maybe they are used to companies where you have to pay money to get those stocks? Big companies gives them to you for free, there is no exercise cost.
- jdright 5y ago3 years receiving vested stocks. If price stayed the same, it would be worth 200k. Today it is worth 80k. So no, thanks. Stocks are not worth unless you're FAANG
- PragmaticPulp 5y agoThe stocks vest progressively. You don’t literally have to wait 3 years to cash out. If you can’t afford a single but if variance then I guess RSUs won’t make you happy. But for everyone else they work just fine (unless your company goes down in flames, in which case you have bigger problems and are probably job searching anyway)
- rco8786 5y agoIncredibly untrue. I’m sorry that your particular company saw a 60% decrease in stock price over 3 years. But this is not the norm for any reasonably healthy company.
- mojomark 5y agoFully concur. I recieved stock appreciation rights (SARs) as a bonus at one company for a few years. CEO drove company into the ground that effectively wiped out all of these SARs. I was bitter at the CEO for making stupid decisions, but not at the fact that my bonus was in the form of SARs. If I'd have stuck to my guns more, the company would have probably succeeded and the SARs could have had significant value. Bottom line, with stock payment, you have a say in their ultimate value. Do good work, company value invreases, you enrich yourself.
- intuitionist 5y agoI think many people on HN may be too young to remember the early 2000s, when you’d kill someone for your stock price to be down only 60% over 3 years, but it absolutely happens to good companies too.
- overrun11 5y agoYou aren't guaranteed your salary either though and in many of those cases in the 2000's workers were laid off. Being paid entirely in cash salary doesn't make you immune to market turbulence.
- srb4 5y agoI thought I was going to be rich with my first job at a startup out of college but the dot com bust basically made it all worthless. Stock is great but cash would have been better.
- pb7 5y agoWhat would you have done with the cash? Hold it? That’s how the poor stay poor.
- alisonkisk 5y agoIt happened 1 year in 20, after an incredible run up, and good companies recovered.
- rco8786 5y agoWe can talk about normal expectations without having to explicitly state that black swan events can happen. If you took a stance of “I’m not going to take any pay in equity because I saw what happened in 2001” you would have left millions of dollars on the table over the last 20 years.
- JohnHaugeland 5y agoI think that once you start looking for hard evidence on software company stocks, you're in for a learning experience.
- JohnHaugeland 5y agoIn reality, most stocks decline. You know this from VCs hitting 10x semi-frequently and still losing money. Statistically speaking, they're correct.
- rco8786 5y agoThis is literally the opposite of reality. The private/VC market is not relevant here. We’re strictly talking about publicly traded companies.
- okhobb 5y agoNo this is actually true. Most stocks do go down (or at least only match much less risky investments like short-term bonds), but the stock market goes up because some stocks go up a lot. This is why all investors diversify. For example, the Russel 3000 Index goes up ~10% a year because they remove bad stocks and replace them with ones that seem better. But, employment at a single company with stock-based compensation is a concentrated bet on that single stock during the employment timeframe. Recently learned this from the excellent and very pithy Michael Batnick blog https://theirrelevantinvestor.com/2020/09/10/most-stocks-suck/ https://theirrelevantinvestor.com/2020/09/10/most-stocks-suc... who was citing https://wpcarey.asu.edu/department-finance/faculty-research/do-stocks-outperform-treasury-bills https://wpcarey.asu.edu/department-finance/faculty-research/...
- overrun11 5y agoI agree the stock market has positive skew but in your career you will have enough bets to smooth out the effects of betting on a single stock. Additionally, you're not really making the same bet as an equity investor because your bet has optionality. Your downside is capped at less than a year in loss earnings because if the stock goes down and the company cannot bring you back up to market rate you just switch companies. If the stock goes up, you enjoy 4 years of above market compensation before getting reset to market rate.
- okhobb 5y ago
- smrtinsert 5y agoClassic survivorship bias
- rco8786 5y ago/shrug. The vast, VAST majority of public companies do not lose 60% of their value in 3 years. I guess that’s just me surviving though.
- Jensson 5y agoIf the stocks go down before they vest you can just leave for another company and reset your compensation to the normal level, it isn't like the contract says you have to stay. If you keep the stocks after they vest then that is your fault for keeping them instead of selling them.
- sys_64738 5y agoI don't think you realize how wrong you are. Many average, boring tech companies pay RSUs big style. Not FAANG big but they're worth crazy amounts.
- baobabKoodaa 5y ago> at least as good as getting cash This claim is patently false. If you receive $100k in cash, you can immediately exchange that to $100k in public company stock. The opposite is not true (if you receive stock with a vesting period, you cannot immediately exchange it to cash). Therefore, getting cash is at least as good as getting public company stock, not the other way around.
- alisonkisk 5y agoWhen you get an offer of $100K cash + $100K in stock, that's before appreciation. So 3 years from now your equity is appreciated but your cash is not, so you get $225K in cash equivalent.
- baobabKoodaa 5y agoThis is false. If you immediately exchanged your cash to stock (as I specified in the post that you are replying to) then 3 years from now your "cash" option is worth exactly the same as your "cash + stock" option.
- rgcase 5y agoThis is wrong. It would be true if you received all the cash in a lump sum as soon as you're hired, and you used it to buy stock, but if your cash "vests" in the same way as equity typically does then you'd lose out on the opportunity for it to appreciate before vesting like shares can.
- pb7 5y agoNo one is giving you 4 years of paychecks on day 1. But they do grant 4 years of equity that is appreciating while you’re waiting for it to vest. That’s the difference. Cash is worse.
- Rastonbury 5y agoIf it's about timeframes it can be thought of as like a year end bonus being paid out when it vests. With some risks in terms of share price (which is like variable cash bonuses). The only reason most prefer cash is because it's a hard number that base increases/bonus are computed by and for negotiation in next job.
- citizenpaul 5y ago>Not sure why people think otherwise. Because stock compensation can be vastly different experiences therefor not just as good as getting cash.
- rco8786 5y agoIt’s weird to say this though. Because stock comp is purely additive in almost all cases. The amount it adds to your pay is variable, and in extreme circumstances can even be $0. But it’s not like you can really lose money because of equity based pay, under normal circumstances.
- citizenpaul 5y agoYou could be compelled to accept a lower salary with the expectations of stock being worth lots of money then it actually (as is the usual case) ends up being less than salary would have. I mean this scenario only happens at just about every startup if you read peoples experiences though I don't know if there are or if its possible to have a study done on this since the data is likely private.
- rco8786 5y agoI could not disagree more. Public companies will give you $X amount in stock. In writing. With specific vesting periods, etc. Obviously if the stock goes up or down so does your pay. But there’s no real way for companies to game this against you. Nearly Every highly paid SWE in the US takes a significant amount of their pay in equity. As an anecdote - I take around 70% of my pay as equity and so does everyone I work with.
- 6gvONxR4sf7o 5y agoPublic companies will sometimes tell you $X amount of stock and not tell you the number of shares, which is what actually matters. For the purposes of the offer, the dont generally use today’s market price as their price per share. In those cases, you can actually end up with less than is offered. And in pre-IPO companies that’s the norm, but that’s beside the point.
- rblatz 5y agoEvery grant I received had exactly how the number of shares would be calculated. Typically a trailing 10 day average as of the closing on a specific date.
- 6gvONxR4sf7o 5y agoSame, but I have friends who have gotten royally screwed on this :(
- rco8786 5y agoAnd friends who have gotten lucky when a dip happens right around conversion time.
- rco8786 5y agoThey will always tell you $X in stock, how else would they value it? But there will be a set date on which that $ amount converts to a number of shares, which then vest over time according to a schedule. I have never seen an offer from a public company that has a # of shares attached to it. Only a dollar amount. Then it converts based on market value at conversion time.
- ctvo 5y agoYou seem to be confusing RSUs typically issued by public companies as part of total compensation with options used by private companies, which often amount to nothing.
- exhilaration 5y agoLike everyone else is saying, you want publicly traded equity - Amazon, Google, Shopify, etc that you can convert to cash, usually in the first year or three. Not the lottery tickets that startups hand out.
- deagle50 5y agoRSUs are almost the same as a regular paycheck, and in my experience the employer has a lot more flexibility to meet your demands when you're negotiating total comp. So yes, the stock could go down, but you're getting more when you start than you would in salary and if doesn't go down you pocket the upside. The vesting schedule is where you need to be careful.
- sershe 5y agothe only scheme i've seen in post ipo equity (rsu-s) is that you are given a cash amount that is converted to shares at current price, then the shares vest over time. If the shares go up you get more cash. Assuming an average company (ie tracking the total market) and an average return this is going to be better than cash.
- sys_64738 5y agoThe trick with equity isn't about making it big at IPO. That rarely happens for most. Go to an established company that does stock RSUs and if you prove your worth the the RSUs will follow. They can be worth a lot from established "boring" companies.
- siscia 5y agoCan we make an example of those "boring" companies?