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Employees got these options when they were worth virtually nothing as compensation. Now they're worth something, Pinkus wants to change his mind. This is equi

by earl 15y ago

Employees got these options when they were worth virtually nothing as compensation. Now they're worth something, Pinkus wants to change his mind. This is equivalent to employees taking options for a company that had failed then three years in going back to the ceo and saying, "You know, I'd like to trade these worthless options for the $20K/year of salary that I gave up. Thanks"

lpolovets 15y ago
But this only affects future options, not options already received, right? Here's a possibly analogous scenario: Imagine this was salary instead of stock: an employee was hired because he was the foremost expert on technology X. To entice him to join, the employee was offered $1m/year for each year that he stayed, up to 4 years. Now it's 2.5 years in, and for various reasons the employee is no longer worth $1m/year to the company: perhaps X is no longer a useful technology, or expertise on X is no longer needed, or there has been an explosion of experts on technology X who would be happy with $200k/year. Would you say it was unethical to tell the employee that while the $2.5 million he has earned so far is obviously his, you can't justify paying him another 1.5 million in the next year and a half, and that he can either accept a pay decrease or be asked to leave?
- earl 15y ago
  your analogy is flawed. Employees got these options in exchange for something -- less salary, or risk. Your hypothetical didn't give up anything for that salary -- it's not like the employee turned down $1.1M for $1.0M. I refer you to the symmetric situation in my previous comment: if Zynga hadn't worked out, would Pinkus be giving long term employees the cash they gave up for their options?
- cheald 15y ago
  That's not analogous, because you take stock options as compensation for not taking a market-rate salary and for accepting the risk inherent in working for a startup. The stock isn't a bonus - it's a part of the total compensation package that is negotiated when the employee is hired. I'm going to accept $Xk/year because I'm getting Y% of the company in stock options, and I believe that the company has what it takes to make it big and for those stock options to be worth above and beyond what I'm giving up in salary and stability for the years that it takes to get there. Furthermore, if you hire someone whose skills become unnecessary, you just lay them off. You don't keep them on board and try to renegotiate them down to a lesser compensation. Here's another analogous scenario: Imagine that you are hired under a contract that says "We don't have the cash on hand today to pay you full market rate today, so we're going to pay you $X per month (which is significantly below market rate), plus $250k bonus at the end of each full year that you're working for us, up to $1m over 4 years, assuming the company lasts that long". Two years pass, and they come back and say "You know what? We decided we don't want to pay you your remaining $500k in promised compensation over the next 2 years. Forfeit that part of your compensation package, or we're going to fire you." You accepted the original compensation deal because the year-end bonuses were adequate compensation for the monthly pay cut you were taking. Stock options aren't just icing handed out on top of already perfectly-acceptable contracts just because.
- po 15y ago
  Guys, you don't have to vote something into oblivion just because you don't agree with it. lpolovets is making their point in a civil way.

by earl 15y ago

lpolovets 15y ago

But this only affects future options, not options already received, right? Here's a possibly analogous scenario: Imagine this was salary instead of stock: an employee was hired because he was the foremost expert on technology X. To entice him to join, the employee was offered $1m/year for each year that he stayed, up to 4 years. Now it's 2.5 years in, and for various reasons the employee is no longer worth $1m/year to the company: perhaps X is no longer a useful technology, or expertise on X is no longer needed, or there has been an explosion of experts on technology X who would be happy with $200k/year. Would you say it was unethical to tell the employee that while the $2.5 million he has earned so far is obviously his, you can't justify paying him another 1.5 million in the next year and a half, and that he can either accept a pay decrease or be asked to leave?

earl 15y ago
your analogy is flawed. Employees got these options in exchange for something -- less salary, or risk. Your hypothetical didn't give up anything for that salary -- it's not like the employee turned down $1.1M for $1.0M. I refer you to the symmetric situation in my previous comment: if Zynga hadn't worked out, would Pinkus be giving long term employees the cash they gave up for their options?
cheald 15y ago
That's not analogous, because you take stock options as compensation for not taking a market-rate salary and for accepting the risk inherent in working for a startup. The stock isn't a bonus - it's a part of the total compensation package that is negotiated when the employee is hired. I'm going to accept $Xk/year because I'm getting Y% of the company in stock options, and I believe that the company has what it takes to make it big and for those stock options to be worth above and beyond what I'm giving up in salary and stability for the years that it takes to get there. Furthermore, if you hire someone whose skills become unnecessary, you just lay them off. You don't keep them on board and try to renegotiate them down to a lesser compensation. Here's another analogous scenario: Imagine that you are hired under a contract that says "We don't have the cash on hand today to pay you full market rate today, so we're going to pay you $X per month (which is significantly below market rate), plus $250k bonus at the end of each full year that you're working for us, up to $1m over 4 years, assuming the company lasts that long". Two years pass, and they come back and say "You know what? We decided we don't want to pay you your remaining $500k in promised compensation over the next 2 years. Forfeit that part of your compensation package, or we're going to fire you." You accepted the original compensation deal because the year-end bonuses were adequate compensation for the monthly pay cut you were taking. Stock options aren't just icing handed out on top of already perfectly-acceptable contracts just because.
po 15y ago
Guys, you don't have to vote something into oblivion just because you don't agree with it. lpolovets is making their point in a civil way.