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>Perhaps the best way to think about it is to try to come up with a total compensation package with the same expected value (using the company valuation of the

by runT1ME 13y ago

>Perhaps the best way to think about it is to try to come up with a total compensation package with the same expected value (using the company valuation of the last round, or a best-efforts guess if it’s been a long time since the round) as the employee would get at a big company like Google Am I missing something or is this saying people should be offered an 'expected' equal compensation package to what they would get at Google? What would the incentive be? Google is a company with quite a bit of projected longevity, career progression, and very good perks. Why would I choose a startup with inherently greater risk for only the same reward?

the_watcher 13y ago
I think he is saying to use the "expected value" calculation that guys like Michael O. Church and the others who warn of the dangers of overvaluing options. Generally, this applies a heavy discount to the potential value of the options to account for the increased risk. So the compensation package should be salary + EV(options) ~= big company. That leaves substantial upside in the case of a success (and if you are joining a company and taking any options at all instead of salary, you should be betting on this anyway). Google may not be the best company to pin to, since they offer pretty generous stock grants from what I understand.
- x0x0 13y ago
  The problem with ev calculations is variance (as Michael O, et al, will no doubt forcibly assert.) Employees in the bay area housing market are probably better off taking a lower ev with a corresponding much much lower variance.
  - the_watcher 13y ago
    That's probably all true. My only point was I don't think Sam was saying to make the compensation package that equals what you'd get at Google based on the most optimistic outcomes, but on a true, expected outcome using some broader averages (which leaves room for upside).
- pedrosorio 13y ago
  For different levels of risk, it is not rational to settle for the same expected value: http://en.wikipedia.org/wiki/Efficient_frontier http://en.wikipedia.org/wiki/Efficient_frontier

by runT1ME 13y ago

the_watcher 13y ago

I think he is saying to use the "expected value" calculation that guys like Michael O. Church and the others who warn of the dangers of overvaluing options. Generally, this applies a heavy discount to the potential value of the options to account for the increased risk. So the compensation package should be salary + EV(options) ~= big company. That leaves substantial upside in the case of a success (and if you are joining a company and taking any options at all instead of salary, you should be betting on this anyway). Google may not be the best company to pin to, since they offer pretty generous stock grants from what I understand.

x0x0 13y ago
The problem with ev calculations is variance (as Michael O, et al, will no doubt forcibly assert.) Employees in the bay area housing market are probably better off taking a lower ev with a corresponding much much lower variance.
- the_watcher 13y ago
  That's probably all true. My only point was I don't think Sam was saying to make the compensation package that equals what you'd get at Google based on the most optimistic outcomes, but on a true, expected outcome using some broader averages (which leaves room for upside).
pedrosorio 13y ago
For different levels of risk, it is not rational to settle for the same expected value: http://en.wikipedia.org/wiki/Efficient_frontier http://en.wikipedia.org/wiki/Efficient_frontier