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So part of their compensation for working is equity, and when they leave thay have to sign an additional agreement in order to keep their previously earned comp

So part of their compensation for working is equity, and when they leave thay have to sign an additional agreement in order to keep their previously earned compensation? How is this legal? Mine as well tell them they have to give all their money back too. What's the consideration for this contract?

fshbbdssbbgdd 2y ago
In the past a lot of options would expire if you didn’t exercise them within eg. 90 days of leaving. And exercising could be really expensive. Speculation: maybe the options they earn when they work there have some provision like this. In return for the NDA the options get extended.
- NewJazz 2y ago
  Options aren't vested equity though.
  - PNewling 2y ago
    ... They definitely can be. When I worked for a small biotech company all of my options had a tiered vesting schedule.
    - NewJazz 2y ago
      They aren't equity no matter what though? They can be vested, I realize that.
    - _heimdall 2y ago
      Options aren't equity, they're only the option to buy equity at a specified price. Vesting just means you can actually buy the shares at the set strike pice. For example, you may join a company and be given options to buy 10,000 shares at $5 each with a 2 year vesting schedule. They may begin vesting immediately, meaning you can buy 1/24th of the total options each month (or 614 shares). Its also common for a delay up front where no options vest until you've been with the company for say 6 or 12 months. Until an option vests you don't own anything. Once it vests, you still have to buy the shares by exercising the option at the $5 per share price. When you leave, most companies have a deadline on the scale of a few months where you have to either buy all vested shares or forfeit them and lose the stock options.
      - teaearlgraycold 2y ago
        > buy all vested shares The last time I did this I didn't have to buy all of the shares.
        lazyasciiart 2y ago
        I think they mean that you had to buy all the ones you wanted to keep.
        ergocoder 2y ago
        That is tautological... You buy what you want to own???
        StackRanker3000 2y ago
        The point being made is that it isn’t all or nothing, you can buy half the vested options and forfeit the rest, should you want to.
        Hnrobert42 2y ago
        Wait, wait. Who is on first?
        d4704 2y ago
        We’d usually point people here to get a better overview of how options work: https://carta.com/learn/equity/stock-options/ https://carta.com/learn/equity/stock-options/
        Taniwha 2y ago
        There can be an advantage to not exercising: it causes a taxable event the IRS will want a cut of the difference between your exercise value and the current valuation, it requires you to commit real money to buy shares that may never be worth anything .... And there are advantages to exercising: many (most?) companies take back unexercised shares a few weeks/months after you leave, it kicks in a CGT start date, so you can end up paying a lower CGT tax when you eventually sell You need to understand all this stuff before you make a choice that's right for you
    - quickthrowman 2y ago
      Re-read the post you’re replying to. They said options are not vested equity, which they aren’t. You still need to exercise an option that has vested to purchase the equity shares. They did not say “options cannot get granted on a tiered vesting schedule”, probably because that isn’t true, as options can be granted with a tiered vesting schedule.
  - deleted 2y ago
    [deleted]
- brudgers 2y ago
  My unreliable memory is Altman was ( once? ) in favor of extending the period for exercising options. I could be wrong of course but it is consistent with my impression that making other people rich is among his motivations. Not the only one of course. But again I could be wrong.
  - resonious 2y ago
    Wouldn't be too surprised if he changed his mind since then. He is in a very different position now!
    - brudgers 2y ago
      Unless a PTEP (Post Termination Exercise Period) beyond the ordinary three months was on offer, there probably wouldn't be a story because the kind of people OpenAI hires would tend to be adverse to working at a place with a PTEP less than three months. Or not, I could be wrong.
eru 2y ago
> What's the consideration for this contract? Consideration is almost meaningless as an obstacle here. They can give the other party a peppercorn, and that would be enough to count as consideration. https://en.wikipedia.org/wiki/Peppercorn_(law) https://en.wikipedia.org/wiki/Peppercorn_(law) There might be other legal challenges here, but 'consideration' is unlikely to be one of them. Unless OpenAI has idiots for lawyers.
- verve_rat 2y ago
  Right, but the employee would be able to refuse the consideration, and thus the contract, and the state of affairs wouldn't change. They would be free to say whatever they wanted.
  - eru 2y ago
    Maybe. But whether the employee can refuse the gag has nothing to do at all with the legal doctrine that requires consideration.
  - kmeisthax 2y ago
    If they refuse the contract then they lose out on their options vesting. Basically, OpenAI's contracts work like this: Employment Contract the First: We are paying you (WAGE) for your labor. In addition you also will be paid (OPTIONS) that, after a vesting period, will pay you a lot of money. If you terminate this employment your options are null and void unless you sign Employment Contract the Second. Employment Contract the Second: You agree to shut the fuck up about everything you saw at OpenAI until the end of time and we agree to pay out your options. Both of these have consideration and as far as I'm aware there's nothing in contract law that requires contracts to be completely self-contained and immutable. If two parties agree to change the deal, then the deal can change. The problem is that OpenAI's agreements are specifically designed to put one counterparty at a disadvantage so that they have to sign the second agreement later. There is an escape valve in contract law for "nobody would sign this" kinds of clauses, but I'm not sure how you'd use it. The legal term of art that you would allege is that the second contract is "unconscionable". But the standard of what counts as unconscionable in contract law is extremely high, because otherwise people would wriggle out of contracts the moment that what seemed like favorable terms turned unfavorable. Contract law doesn't care if the deal is fair (that's the FTC's job), it cares about whether or not the deal was agreed to.
throwaway598 2y ago
That OpenAI are institutionally unethical. That such a young company can be become rotten so quickly can only be due to leadership instruction or leadership failure.
- jasonm23 2y ago
  Clearly by design. The most dishonest leadership.
- smt88 2y ago
  Look at Sam Altman's career and tweets. He's a clown at best, and at worst he's a manipulative crook who only cares about his own enrichment and uses pro-social ideas to give himself a veneer of trustworthiness.
  - orlandrescu 2y ago
    Awfully familiar to the other South-African emerald mine inheritor tech mogul.
    - kmeisthax 2y ago
      I'm starting to think the relatives of South African emerald mine owners might not be the best people to trust...
      - fennecbutt 2y ago
        Lmao no point in worrying about AI spreading FUD when people do it all by themselves. You know what AI is actually gonna be useful for? AR source attachments to everything that comes out of our monkey mouths, or a huge floating [no source] over someone's head. Realtime factual accuracy checking pls I need it.
        docmars 2y ago
        If it comes packaged with the constant barrage of ridicule and abuse from others for daring to be slightly wrong about something, nobody may as well talk at all.
phkahler 2y ago
Yeah you don't have to sign anything to quit. Ever. No new terms at that time, sorry.
- ska 2y ago
  There is usually a carrot along with the stick.
willis936 2y ago
They earned wages and paid taxes on them. Anything on top is just the price they're willing to accept in exchange for their principles.
- throw101010 2y ago
  How do you figure that they should pay an additional price (their principle/silence) for this equity when they've supposedly earned it during their employment (assuming this was not planned when they got hired, since they make them sign new terms at the time of their departure)?
zeroonetwothree 2y ago
I assume it’s agreed to at time of employment? Otherwise you’re right that it doesn't make sense
- throw101010 2y ago
  Why do you assume this if it is said here and in the article that they had to sign something at the time of the departure from the company?
riehwvfbk 2y ago
It's also really weird equity: you don't get an ownership stake in the company but rather profit-sharing units. If OpenAI ever becomes profitable (color me skeptical), you can indeed get rich as an employee. The other trigger is "achieving AGI", as defined by sama (presumably). And while you wait for these dubious events to occur you work insane hours for a mediocre cash salary.
blackeyeblitzar 2y ago
Unfortunately this is how most startup equity agreements are structured. They include terms that let the company cancel options that haven’t been exercised for [various reasons]. Those reasons are very open ended, and maybe they could be challenged in a court, but how can a low level employee afford to do that?
- jkaplowitz 2y ago
  I don’t know of any other such agreements that allow vested equity to be revoked, as the other person said. That doesn’t sound very vested to me. But we already knew there are a lot of weird aspects to OpenAI’s semi-nonprofit/semi-for-profit approximation of equity.
  - blackeyeblitzar 2y ago
    As far as I know it’s part of the stock plan for most startups. There’s usually a standard clause that covers this, usually with phrasing that sounds reasonable (like triggering if company policy is violated or is found to have been violated in the past). But it gives the company a lot of power in deciding if that’s the case.
nurple 2y ago
The thing is that this is a private company, so there is no public market to provide liquidity. The company can make itself the sole source of liquidity, at its option, by placing sell restrictions on the grants. Toe the line, or you will find you never get to participate in a liquidity event. There's more info on how SpaceX uses a scheme like this[0] to force compliance, and seeing as Musk had a hand in creating both orgs, they're bound to be similar. [0] https://techcrunch.com/2024/03/15/spacex-employee-stock-sales-forbidden/ https://techcrunch.com/2024/03/15/spacex-employee-stock-sale...
- tdumitrescu 2y ago
  Whoa. That article says that SpaceX does tender offers twice a year?! That's so much better than 99% of private companies, it makes it almost as liquid for employees as a public company.
  - nurple 2y ago
    Which in a real way makes the threat of being left out of liquidity rounds that much more powerful a tool for keeping people looking forward to an actual windfall in their lane.
temporarely 2y ago
I think we should have the exit agreement (if any) included and agreed to as part of the signing the employment contract.
theyinwhy 2y ago
I guess there are indeed countries where this is illegal. Funny that it seems to be legal in the land of the free (speech).
glitchc 2y ago
I'm guessing unvested equity is being treated separately from other forms of compensation. Normally, leaving a company loses the individual all rights to unvested options. Here the considetation is that options are retained in exchange for silence.
e40 2y ago
Perhaps they are stock options and leaving without signing would make them evaporate, but signing turns them back into long-lasting options?
deleted 2y ago
[deleted]
m3kw9 2y ago
In the initial hiring agreement, this would be stated and the employee would have to agree to signing such form if they are to depart
bobbob1921 2y ago
I would guess it’s a bonus and part of their bonus structure and they agreed to the terms of any exit/departure, when they sign their initial contract. I’m not saying it’s right or that I agree with it, however.

fshbbdssbbgdd 2y ago

In the past a lot of options would expire if you didn’t exercise them within eg. 90 days of leaving. And exercising could be really expensive. Speculation: maybe the options they earn when they work there have some provision like this. In return for the NDA the options get extended.

NewJazz 2y ago
Options aren't vested equity though.
- PNewling 2y ago
  ... They definitely can be. When I worked for a small biotech company all of my options had a tiered vesting schedule.
  - NewJazz 2y ago
    They aren't equity no matter what though? They can be vested, I realize that.
  - _heimdall 2y ago
    Options aren't equity, they're only the option to buy equity at a specified price. Vesting just means you can actually buy the shares at the set strike pice. For example, you may join a company and be given options to buy 10,000 shares at $5 each with a 2 year vesting schedule. They may begin vesting immediately, meaning you can buy 1/24th of the total options each month (or 614 shares). Its also common for a delay up front where no options vest until you've been with the company for say 6 or 12 months. Until an option vests you don't own anything. Once it vests, you still have to buy the shares by exercising the option at the $5 per share price. When you leave, most companies have a deadline on the scale of a few months where you have to either buy all vested shares or forfeit them and lose the stock options.
    - teaearlgraycold 2y ago
      > buy all vested shares The last time I did this I didn't have to buy all of the shares.
      - lazyasciiart 2y ago
        I think they mean that you had to buy all the ones you wanted to keep.
        ergocoder 2y ago
        That is tautological... You buy what you want to own???
        StackRanker3000 2y ago
        The point being made is that it isn’t all or nothing, you can buy half the vested options and forfeit the rest, should you want to.
        Hnrobert42 2y ago
        Wait, wait. Who is on first?
        d4704 2y ago
        We’d usually point people here to get a better overview of how options work: https://carta.com/learn/equity/stock-options/ https://carta.com/learn/equity/stock-options/
        Taniwha 2y ago
        There can be an advantage to not exercising: it causes a taxable event the IRS will want a cut of the difference between your exercise value and the current valuation, it requires you to commit real money to buy shares that may never be worth anything .... And there are advantages to exercising: many (most?) companies take back unexercised shares a few weeks/months after you leave, it kicks in a CGT start date, so you can end up paying a lower CGT tax when you eventually sell You need to understand all this stuff before you make a choice that's right for you
  - quickthrowman 2y ago
    Re-read the post you’re replying to. They said options are not vested equity, which they aren’t. You still need to exercise an option that has vested to purchase the equity shares. They did not say “options cannot get granted on a tiered vesting schedule”, probably because that isn’t true, as options can be granted with a tiered vesting schedule.
- deleted 2y ago
  [deleted]
brudgers 2y ago
My unreliable memory is Altman was ( once? ) in favor of extending the period for exercising options. I could be wrong of course but it is consistent with my impression that making other people rich is among his motivations. Not the only one of course. But again I could be wrong.
- resonious 2y ago
  Wouldn't be too surprised if he changed his mind since then. He is in a very different position now!
  - brudgers 2y ago
    Unless a PTEP (Post Termination Exercise Period) beyond the ordinary three months was on offer, there probably wouldn't be a story because the kind of people OpenAI hires would tend to be adverse to working at a place with a PTEP less than three months. Or not, I could be wrong.

eru 2y ago

> What's the consideration for this contract? Consideration is almost meaningless as an obstacle here. They can give the other party a peppercorn, and that would be enough to count as consideration. https://en.wikipedia.org/wiki/Peppercorn_(law) https://en.wikipedia.org/wiki/Peppercorn_(law) There might be other legal challenges here, but 'consideration' is unlikely to be one of them. Unless OpenAI has idiots for lawyers.

verve_rat 2y ago
Right, but the employee would be able to refuse the consideration, and thus the contract, and the state of affairs wouldn't change. They would be free to say whatever they wanted.
- eru 2y ago
  Maybe. But whether the employee can refuse the gag has nothing to do at all with the legal doctrine that requires consideration.
- kmeisthax 2y ago
  If they refuse the contract then they lose out on their options vesting. Basically, OpenAI's contracts work like this: Employment Contract the First: We are paying you (WAGE) for your labor. In addition you also will be paid (OPTIONS) that, after a vesting period, will pay you a lot of money. If you terminate this employment your options are null and void unless you sign Employment Contract the Second. Employment Contract the Second: You agree to shut the fuck up about everything you saw at OpenAI until the end of time and we agree to pay out your options. Both of these have consideration and as far as I'm aware there's nothing in contract law that requires contracts to be completely self-contained and immutable. If two parties agree to change the deal, then the deal can change. The problem is that OpenAI's agreements are specifically designed to put one counterparty at a disadvantage so that they have to sign the second agreement later. There is an escape valve in contract law for "nobody would sign this" kinds of clauses, but I'm not sure how you'd use it. The legal term of art that you would allege is that the second contract is "unconscionable". But the standard of what counts as unconscionable in contract law is extremely high, because otherwise people would wriggle out of contracts the moment that what seemed like favorable terms turned unfavorable. Contract law doesn't care if the deal is fair (that's the FTC's job), it cares about whether or not the deal was agreed to.

throwaway598 2y ago

That OpenAI are institutionally unethical. That such a young company can be become rotten so quickly can only be due to leadership instruction or leadership failure.

jasonm23 2y ago
Clearly by design. The most dishonest leadership.
smt88 2y ago
Look at Sam Altman's career and tweets. He's a clown at best, and at worst he's a manipulative crook who only cares about his own enrichment and uses pro-social ideas to give himself a veneer of trustworthiness.
- orlandrescu 2y ago
  Awfully familiar to the other South-African emerald mine inheritor tech mogul.
  - kmeisthax 2y ago
    I'm starting to think the relatives of South African emerald mine owners might not be the best people to trust...
    - fennecbutt 2y ago
      Lmao no point in worrying about AI spreading FUD when people do it all by themselves. You know what AI is actually gonna be useful for? AR source attachments to everything that comes out of our monkey mouths, or a huge floating [no source] over someone's head. Realtime factual accuracy checking pls I need it.
      - docmars 2y ago
        If it comes packaged with the constant barrage of ridicule and abuse from others for daring to be slightly wrong about something, nobody may as well talk at all.

phkahler 2y ago

Yeah you don't have to sign anything to quit. Ever. No new terms at that time, sorry.

ska 2y ago
There is usually a carrot along with the stick.

willis936 2y ago

They earned wages and paid taxes on them. Anything on top is just the price they're willing to accept in exchange for their principles.

throw101010 2y ago
How do you figure that they should pay an additional price (their principle/silence) for this equity when they've supposedly earned it during their employment (assuming this was not planned when they got hired, since they make them sign new terms at the time of their departure)?

zeroonetwothree 2y ago

I assume it’s agreed to at time of employment? Otherwise you’re right that it doesn't make sense

throw101010 2y ago
Why do you assume this if it is said here and in the article that they had to sign something at the time of the departure from the company?

riehwvfbk 2y ago

It's also really weird equity: you don't get an ownership stake in the company but rather profit-sharing units. If OpenAI ever becomes profitable (color me skeptical), you can indeed get rich as an employee. The other trigger is "achieving AGI", as defined by sama (presumably). And while you wait for these dubious events to occur you work insane hours for a mediocre cash salary.

blackeyeblitzar 2y ago

Unfortunately this is how most startup equity agreements are structured. They include terms that let the company cancel options that haven’t been exercised for [various reasons]. Those reasons are very open ended, and maybe they could be challenged in a court, but how can a low level employee afford to do that?

jkaplowitz 2y ago
I don’t know of any other such agreements that allow vested equity to be revoked, as the other person said. That doesn’t sound very vested to me. But we already knew there are a lot of weird aspects to OpenAI’s semi-nonprofit/semi-for-profit approximation of equity.
- blackeyeblitzar 2y ago
  As far as I know it’s part of the stock plan for most startups. There’s usually a standard clause that covers this, usually with phrasing that sounds reasonable (like triggering if company policy is violated or is found to have been violated in the past). But it gives the company a lot of power in deciding if that’s the case.

nurple 2y ago

The thing is that this is a private company, so there is no public market to provide liquidity. The company can make itself the sole source of liquidity, at its option, by placing sell restrictions on the grants. Toe the line, or you will find you never get to participate in a liquidity event. There's more info on how SpaceX uses a scheme like this[0] to force compliance, and seeing as Musk had a hand in creating both orgs, they're bound to be similar. [0] https://techcrunch.com/2024/03/15/spacex-employee-stock-sales-forbidden/ https://techcrunch.com/2024/03/15/spacex-employee-stock-sale...

tdumitrescu 2y ago
Whoa. That article says that SpaceX does tender offers twice a year?! That's so much better than 99% of private companies, it makes it almost as liquid for employees as a public company.
- nurple 2y ago
  Which in a real way makes the threat of being left out of liquidity rounds that much more powerful a tool for keeping people looking forward to an actual windfall in their lane.

temporarely 2y ago

I think we should have the exit agreement (if any) included and agreed to as part of the signing the employment contract.

theyinwhy 2y ago

I guess there are indeed countries where this is illegal. Funny that it seems to be legal in the land of the free (speech).

glitchc 2y ago

I'm guessing unvested equity is being treated separately from other forms of compensation. Normally, leaving a company loses the individual all rights to unvested options. Here the considetation is that options are retained in exchange for silence.

e40 2y ago

Perhaps they are stock options and leaving without signing would make them evaporate, but signing turns them back into long-lasting options?

deleted 2y ago

[deleted]

m3kw9 2y ago

In the initial hiring agreement, this would be stated and the employee would have to agree to signing such form if they are to depart

bobbob1921 2y ago

I would guess it’s a bonus and part of their bonus structure and they agreed to the terms of any exit/departure, when they sign their initial contract. I’m not saying it’s right or that I agree with it, however.