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That is an inaccurate view of the situation. Unvested shares are not equity. You are acting as if they are being asked to give away something that they own; th

That is an inaccurate view of the situation. Unvested shares are not equity. You are acting as if they are being asked to give away something that they own; they are being asked to give up future compensation. I put this in another comment: "However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares. The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at." I know this goes against the way it's always been in the tech industry, but it is not extortion.

wavephorm 15y ago
Now you're just descending into pedantry. Yes, unvested shares are not technically equity, that doesn't mean they cannot be the basis of extortion.
ootachi 15y ago
The company didn't hire you to work as a 4-share employee, they hired you to work as a 4-share employee with significant upside potential. That is how early startup employees are compensated for the increased risk and lesser salary they take on.
- Androsynth 15y ago
  Yes, you and your sibling threads are all correct, but it's not extortion. It's immoral and will certainly hurt them in the future, but it's not extortion. I am simply trying to explain why this is a moral issue and not a legal issue. This is the equivalent of saying: 'your gonna have to take a pay cut or were gonna have to let you go'. It is morally repugnant and goes against everything we believe in the startup community, but it is not illegal, nor should it be.
  - rhizome 15y ago
    You don't know whether or not it's a legal issue.
    - Androsynth 15y ago
      I am saying it shouldn't be a legal issue. It is the equivalent of saying 'you need to take a cut in pay or you will be laid off'.
      - _delirium 15y ago
        If we're talking about what should be illegal, I find it hard to argue that it shouldn't be. If you hire someone on the promise that they'll get a bonus at 5 years, and purposely fire them at 4 years, 11 months solely to avoid paying them the bonus, that should be illegal. In any reasonable interpretation of the contract, that isn't good-faith upholding of the contract--- you promised them something at certain milestones, and then purposely acted in a manner intended for the sole purpose of sabotaging the milestones, which is acting in bad faith. In most other kinds of contingent pay that's tortious: if you promise a building contractor contingency bonuses upon meeting certain deadlines, and then you purposely interfere to make them miss the deadlines so you can get the work cheaper (and admit doing so!), you're probably acting illegally. Heck, even basketball players have sued over instances where a team kept them out of a few games solely to cause them to miss performance targets.
        ericd 15y ago
        I disagree, what you describe is shady, but also pretty unrealistic. Normally there's a vesting schedule with only a 1 year cliff, and then chunks vest yearly. That's essentially pro-rata.
        rdl 15y ago
        The standard is to have a 1 year cliff (i.e. 25% of equity vest at 1 year), and then monthly vesting of the remainder (1/36 per month for the next 36 months). NOT yearly vesting after the first year. The exception is M&A earn out or vesting for key hires, which is often yearly, and sometimes even crazier; 1/2/3/4 where it's 10% the first year, 20% the second, 30% the third, and 40% the fourth.
nathanb 15y ago
And you are making the critical assumption that the employee or the employer in your hypothetical situation expected those four shares to remain four shares. If I'm a small company just getting started, what do I have to attract top talent? Maybe I can't afford to pay as well as the established companies, or maybe my benefits are going to be worse (or nonexistent). But I do have stock options. If I'm a fledgling corporation, stock options can get me more talent than I could otherwise command, and if I'm a skilled engineer, I feel like I can directly affect the fortunes of this company and thus my own net worth if I am compensated heavily in stock options which, in the unlikely chance that all goes better than expected, could make me wildly rich. Your hypothetical four-share employee certainly didn't sign on just on the strength of those four shares alone. And, quite possibly, the employer played up the possibility of those four shares becoming many more shares down the road if things go well.
Gormo 15y ago
Unvested shares may not be equity in the company, but they very well may be equity in the equity. They represent a promise to grant actual shares when certain conditions are met, and that promise is worth something in the present. Contriving to reneg on that promise is little different from defaulting on your debts. In a way, it actually is defaulting on a debt.
deleted 15y ago
[deleted]
danssig 15y ago
>You are acting as if they are being asked to give away something that they own They are. They own those stock options, with the provision that they stay out the life of the vesting period. They are now being prevented from holding up their side of the contract. They would gladly stay through the vesting period if allowed to.

wavephorm 15y ago

Now you're just descending into pedantry. Yes, unvested shares are not technically equity, that doesn't mean they cannot be the basis of extortion.

ootachi 15y ago

The company didn't hire you to work as a 4-share employee, they hired you to work as a 4-share employee with significant upside potential. That is how early startup employees are compensated for the increased risk and lesser salary they take on.

Androsynth 15y ago
Yes, you and your sibling threads are all correct, but it's not extortion. It's immoral and will certainly hurt them in the future, but it's not extortion. I am simply trying to explain why this is a moral issue and not a legal issue. This is the equivalent of saying: 'your gonna have to take a pay cut or were gonna have to let you go'. It is morally repugnant and goes against everything we believe in the startup community, but it is not illegal, nor should it be.
- rhizome 15y ago
  You don't know whether or not it's a legal issue.
  - Androsynth 15y ago
    I am saying it shouldn't be a legal issue. It is the equivalent of saying 'you need to take a cut in pay or you will be laid off'.
    - _delirium 15y ago
      If we're talking about what should be illegal, I find it hard to argue that it shouldn't be. If you hire someone on the promise that they'll get a bonus at 5 years, and purposely fire them at 4 years, 11 months solely to avoid paying them the bonus, that should be illegal. In any reasonable interpretation of the contract, that isn't good-faith upholding of the contract--- you promised them something at certain milestones, and then purposely acted in a manner intended for the sole purpose of sabotaging the milestones, which is acting in bad faith. In most other kinds of contingent pay that's tortious: if you promise a building contractor contingency bonuses upon meeting certain deadlines, and then you purposely interfere to make them miss the deadlines so you can get the work cheaper (and admit doing so!), you're probably acting illegally. Heck, even basketball players have sued over instances where a team kept them out of a few games solely to cause them to miss performance targets.
      - ericd 15y ago
        I disagree, what you describe is shady, but also pretty unrealistic. Normally there's a vesting schedule with only a 1 year cliff, and then chunks vest yearly. That's essentially pro-rata.
        rdl 15y ago
        The standard is to have a 1 year cliff (i.e. 25% of equity vest at 1 year), and then monthly vesting of the remainder (1/36 per month for the next 36 months). NOT yearly vesting after the first year. The exception is M&A earn out or vesting for key hires, which is often yearly, and sometimes even crazier; 1/2/3/4 where it's 10% the first year, 20% the second, 30% the third, and 40% the fourth.

nathanb 15y ago

And you are making the critical assumption that the employee or the employer in your hypothetical situation expected those four shares to remain four shares. If I'm a small company just getting started, what do I have to attract top talent? Maybe I can't afford to pay as well as the established companies, or maybe my benefits are going to be worse (or nonexistent). But I do have stock options. If I'm a fledgling corporation, stock options can get me more talent than I could otherwise command, and if I'm a skilled engineer, I feel like I can directly affect the fortunes of this company and thus my own net worth if I am compensated heavily in stock options which, in the unlikely chance that all goes better than expected, could make me wildly rich. Your hypothetical four-share employee certainly didn't sign on just on the strength of those four shares alone. And, quite possibly, the employer played up the possibility of those four shares becoming many more shares down the road if things go well.

Gormo 15y ago

Unvested shares may not be equity in the company, but they very well may be equity in the equity. They represent a promise to grant actual shares when certain conditions are met, and that promise is worth something in the present. Contriving to reneg on that promise is little different from defaulting on your debts. In a way, it actually is defaulting on a debt.

deleted 15y ago

[deleted]

danssig 15y ago

>You are acting as if they are being asked to give away something that they own They are. They own those stock options, with the provision that they stay out the life of the vesting period. They are now being prevented from holding up their side of the contract. They would gladly stay through the vesting period if allowed to.