8 ms·

The compensation model for pre-RSU startups is broken right now. The combination of late exits, short exercise windows, and heavy taxes on illiquid gains, means

The compensation model for pre-RSU startups is broken right now. The combination of late exits, short exercise windows, and heavy taxes on illiquid gains, means you can wind up deeply in the red as often as in the black. In my last job search all the startup founders whined about not being able to keep up with big company comp, but I can't justify giving up X00,000 RSU's for the real possibility of going deeply into debt. The reward structure needs to change so there's good chances of being rewarded. It's a shame. I love working in these tiny startups, but I can no longer justify it.

davedx 4y ago
Work at tiny startups as a contractor, I highly recommend it! All the motivation and autonomy and sense of achievement and none of the messy complicated risky stock option stuff :)
- altdataseller 4y ago
  Dont you have to constantly find new gigs because these tiny startups keep going out of biz?
  - bombcar 4y ago
    Same as if you were working for the startup directly, and as a contractor nobody will complain if you line up additional gigs on the side.
  - capableweb 4y ago
    I'm kind of doing the same thing, usual stint at each of them range between 1-2 years, I'm fine jumping at that point as the company already grew too big for me to be comfortable. All of them are still ongoing, runways have been 6-12 months each time I joined.
  - davedx 4y ago
    That’s happened once so far yeah :) so generally I tend to move on before companies go under
- deleted 4y ago
  [deleted]
- bradlys 4y ago
  Is this as financially viable as being an engineer at FAANG? E.g. you’re getting paid $400k+ liquid for senior/e5 roles.
  - davedx 4y ago
    Yeah I’m earning very roughly half that. 400k liquid sounds like a stretch to me though, you sure that’s not total comp?
N_A_T_E 4y ago
Is there a reason these companies can't award stock and have to stick with options?
- phxrsg 4y ago
  No reason the company cant do that, usually, but it's not advantageous for (most) employees. RSU comp is taxable on vest, but if the stock is not liquid the employee must pay out of pocket at each vesting event to cover the taxes.
  - cgb223 4y ago
    > RSU comp is taxable on vest I’m in the job interview process right now Looking at a pre-IPO company with RSUs Does this mean that I pay taxes on those RSUs when I get them, _even_ if I don’t sell them?
    - phxrsg 4y ago
      Depends on if they are set up with a double trigger. Here is a decent explainer, but you can research more about RSU double triggers that can help avoid taxes for large-but-private companies: https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-double-trigger-rsu-vesting https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-do... What this does mean, though, is that until the second trigger is hit you haven't technically vested the RSUs. So you get around the taxation but there may be additional conditions on your equity. Basically - make sure you read the stock plan
      - yardstick 4y ago
        > So you get around the taxation And pay a lot more tax in the process, than if you were able to exercise early. IRS always has to have its cake and eat it.
        dilyevsky 4y ago
        Early exercise is rarely ever an option except for very early stage companies. Most are ISOs with 90d window (which if you’re lucky converts to NSOs with a longer window) which is worst of both world bc of AMT
tschellenbach 4y ago
Why would you go into debt? Unless you borrow to exercise your stock options or get hit with the alternative minimum tax?
foobiekr 4y ago
I wish someone would explain the rise of the the "everyone is an insider" trading windows thing. There's really no legitimate reason that I can come up with for the lack of proper controls that creates and perpetuates this situation. I imagine executive insiders like it for the stability it brings the stock, but still.
- R0b0t1 4y ago
  - solardev 4y ago
    Why would it be insane for the execs to suffer the same consequences as their employees? So what if they take a loss? They'll live.
  - arcticfox 4y ago
    > A good example is a telecom CEO who refused warrantless monitoring. He consequently sold before he lost a major government contract. Sadly in a case like this the only chance you have is shooting the people who try to arrest you and hoping you survive. Um, the other choice rather than murder is to just hold the stock until the news is public and be a slightly less rich telecom CEO
- ghaff 4y ago
  The theory at least, especially at a smaller public company, is that a fair number of people potentially have access to information about things, including some feel for where financial results are ending up. Therefore, rather than shrug and tell people to use their own best judgment about their trading on material non-public information, you put a trading window in place that takes a fair bit of judgment out of it.
ska 4y ago
I’ve been on both sides of that negotiating table. It’s ok to say the role won’t match a bigco compensation package, and if that’s you priority you should probably take the bigco offer. An early stage startup is a fundamentally different experience, with pluses and minuses relative to big co’s. If the +’s outweigh the minuses, take the job. No whining need be involved, on either side :) (Fwiw, I do think it is important for early stage startups to be even handed and fair on pay, but that doesn’t mean you necessarily have to go toe to toe with the biggest offers)
- mavelikara 4y ago
  > that doesn’t mean you necessarily have to go toe to toe with the biggest offers Most startups insist that their world changing idea can be built only by engineers from MIT or Stanford. That is where the whining on both sides come from.
  - MathYouF 4y ago
    My philosophy is if you think they're wrong and you don't need those people, then they have poor judgement, and you're better off not working with them in that case, and in fact could beat them by pursuing similar goals while not using that strategy. And if they're right, well then what's there to be upset about?
    - mavelikara 4y ago
      I am not upset. I, as you said, avoid them. I was offering it as an explanation. I believe that there are startups that need special engineering skills. The 40-for-founders-40-for-VCs-20-for-employees math don't incentivize those, though. Which is a shame. At the turn of the century, a new crop of VCs with founder-friendly terms came about. The industry benefited from it. Many startups that would not have otherwise been founded, were successful. I am hoping that the market will eventually bring about VCs and founders with employee-friendly terms. Me commenting here is towards that goal. You have a right to disagree with me, but why argue that I should not be making this point?
- 4y ago

davedx 4y ago

Work at tiny startups as a contractor, I highly recommend it! All the motivation and autonomy and sense of achievement and none of the messy complicated risky stock option stuff :)

altdataseller 4y ago
Dont you have to constantly find new gigs because these tiny startups keep going out of biz?
- bombcar 4y ago
  Same as if you were working for the startup directly, and as a contractor nobody will complain if you line up additional gigs on the side.
- capableweb 4y ago
  I'm kind of doing the same thing, usual stint at each of them range between 1-2 years, I'm fine jumping at that point as the company already grew too big for me to be comfortable. All of them are still ongoing, runways have been 6-12 months each time I joined.
- davedx 4y ago
  That’s happened once so far yeah :) so generally I tend to move on before companies go under
deleted 4y ago
[deleted]
bradlys 4y ago
Is this as financially viable as being an engineer at FAANG? E.g. you’re getting paid $400k+ liquid for senior/e5 roles.
- davedx 4y ago
  Yeah I’m earning very roughly half that. 400k liquid sounds like a stretch to me though, you sure that’s not total comp?

N_A_T_E 4y ago

Is there a reason these companies can't award stock and have to stick with options?

phxrsg 4y ago
No reason the company cant do that, usually, but it's not advantageous for (most) employees. RSU comp is taxable on vest, but if the stock is not liquid the employee must pay out of pocket at each vesting event to cover the taxes.
- cgb223 4y ago
  > RSU comp is taxable on vest I’m in the job interview process right now Looking at a pre-IPO company with RSUs Does this mean that I pay taxes on those RSUs when I get them, _even_ if I don’t sell them?
  - phxrsg 4y ago
    Depends on if they are set up with a double trigger. Here is a decent explainer, but you can research more about RSU double triggers that can help avoid taxes for large-but-private companies: https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-double-trigger-rsu-vesting https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-do... What this does mean, though, is that until the second trigger is hit you haven't technically vested the RSUs. So you get around the taxation but there may be additional conditions on your equity. Basically - make sure you read the stock plan
    - yardstick 4y ago
      > So you get around the taxation And pay a lot more tax in the process, than if you were able to exercise early. IRS always has to have its cake and eat it.
      - dilyevsky 4y ago
        Early exercise is rarely ever an option except for very early stage companies. Most are ISOs with 90d window (which if you’re lucky converts to NSOs with a longer window) which is worst of both world bc of AMT

tschellenbach 4y ago

Why would you go into debt? Unless you borrow to exercise your stock options or get hit with the alternative minimum tax?

foobiekr 4y ago

I wish someone would explain the rise of the the "everyone is an insider" trading windows thing. There's really no legitimate reason that I can come up with for the lack of proper controls that creates and perpetuates this situation. I imagine executive insiders like it for the stability it brings the stock, but still.

R0b0t1 4y ago
- solardev 4y ago
  Why would it be insane for the execs to suffer the same consequences as their employees? So what if they take a loss? They'll live.
- arcticfox 4y ago
  > A good example is a telecom CEO who refused warrantless monitoring. He consequently sold before he lost a major government contract. Sadly in a case like this the only chance you have is shooting the people who try to arrest you and hoping you survive. Um, the other choice rather than murder is to just hold the stock until the news is public and be a slightly less rich telecom CEO
ghaff 4y ago
The theory at least, especially at a smaller public company, is that a fair number of people potentially have access to information about things, including some feel for where financial results are ending up. Therefore, rather than shrug and tell people to use their own best judgment about their trading on material non-public information, you put a trading window in place that takes a fair bit of judgment out of it.

ska 4y ago

I’ve been on both sides of that negotiating table. It’s ok to say the role won’t match a bigco compensation package, and if that’s you priority you should probably take the bigco offer. An early stage startup is a fundamentally different experience, with pluses and minuses relative to big co’s. If the +’s outweigh the minuses, take the job. No whining need be involved, on either side :) (Fwiw, I do think it is important for early stage startups to be even handed and fair on pay, but that doesn’t mean you necessarily have to go toe to toe with the biggest offers)

mavelikara 4y ago
> that doesn’t mean you necessarily have to go toe to toe with the biggest offers Most startups insist that their world changing idea can be built only by engineers from MIT or Stanford. That is where the whining on both sides come from.
- MathYouF 4y ago
  My philosophy is if you think they're wrong and you don't need those people, then they have poor judgement, and you're better off not working with them in that case, and in fact could beat them by pursuing similar goals while not using that strategy. And if they're right, well then what's there to be upset about?
  - mavelikara 4y ago
    I am not upset. I, as you said, avoid them. I was offering it as an explanation. I believe that there are startups that need special engineering skills. The 40-for-founders-40-for-VCs-20-for-employees math don't incentivize those, though. Which is a shame. At the turn of the century, a new crop of VCs with founder-friendly terms came about. The industry benefited from it. Many startups that would not have otherwise been founded, were successful. I am hoping that the market will eventually bring about VCs and founders with employee-friendly terms. Me commenting here is towards that goal. You have a right to disagree with me, but why argue that I should not be making this point?
4y ago